Large Capital loss... but no Capital Gains what and when can I claim it? Canada

[K-ice]

Last year I finally sold 1/2 of a stock that has fallen.  I am still waiting for the bank statement but my notes say a loss of about $15K.

I am happy I got rid of it because I stopped the bleeding as the remaining half now has a loss of $17K.

I do not know what to do with this tax wise as I do not have a capital gain to claim against it. We also don't plan on selling anything with a capital gain any time soon.

These are stocks that my SO and I own jointly. 

Does anyone know if we can each claim $3000/y against our 2019 income and apply the rest later?

This site mentions something to that effect:
https://www.fool.com/retirement/2017/02/15/what-is-the-capital-loss-tax-deduction.aspx

Or do we just hold the loss for decades:
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/capital-losses-deductions/other-year-losses-carried-forward.html

I will discuss this with my accountant but I am looking to educate myself first.

[MDM]

Don't know about Canadian law.  In the US you could use $3000/yr total against ordinary income (after using any amount to offset capital gains) until the whole loss is used.

Might want to change the title to note this is a question for Canadians.

[MoseyingAlong]

Don't know about Canadian law.  In the US you could use $3000/yr total against ordinary income (after using any amount to offset capital gains) until the whole loss is used.

Might want to change the title to note this is a question for Canadians.

That was my initial reaction. And then I noticed it's in the "Canada Tax Discussion" baby board. Whoops.

[MDM]

That was my initial reaction. And then I noticed it's in the "Canada Tax Discussion" baby board. Whoops.

Good point!

[K-ice]

^^^ Thanks for trying.  I added Canada to the heading as the baby board is not obvious ;)

Also, Google usually knows where I am when I search but it looks like that $3000 deal is in the US only.

Sigh!

[Mighty Eyebrows]

These are stocks that my SO and I own jointly. 

Your accountant will be able to help, but you will have to figure out how much of the ACB is owned by each of you. It depends on how much each of you contributed to the investment over its whole history.

Joint accounts are tricky. In general, unless you strictly contribute exactly 50/50 to the account, it is better to keep taxable investments separate. You can make your SO as a secondary holder (joint tenants with right of survivorship: JTWROS) for estate purposes, but make sure you only contribute to your own primary account. Keeping your tax life clean and clear is worth some up-front effort.

[K-ice]

We were very careful to contribute equally. My nick-name is Even-Steven when it comes to our joint finances. So I am not too concerned about the "joint" details here.

Rounding the numbers our book cost was $40K and the current market value was $10K.

We sold half giving us $5K cash. The remaining stocks in the account were market valued at $5K with a book value of $20K.

With all of this I believe the capital loss is $15K.  But last year we had no Capital gains, I also don't expect any capital gains any time soon.

So what do I do with this capital loss?  I feel like I need to keep the records in a safe for decades, maybe even with our wills...

I foolishly thought I could just apply it against our 2019 income but that doesn't look true.

[FIRE Artist]

You claim it on your income tax this year and the loss rolls forward to future years when you can use it to offset future capital gains. Revenue Canada will keep track of how much you have left every year. I did a tax loss harvesting exercise a few years back, and I am still using it to offset annual gains. 

I just checked, it he value remaining is on my Notice of Assessment.

So, make sure you let RC know about the loss on your return this year.

[Mighty Eyebrows]

We were very careful to contribute equally.

Well done on planning ahead. That is very rare!

[K-ice]

Thanks for the tips. I’ll get it on the books this year.

[Lews Therin]

You claim it on your income tax this year and the loss rolls forward to future years when you can use it to offset future capital gains. Revenue Canada will keep track of how much you have left every year. I did a tax loss harvesting exercise a few years back, and I am still using it to offset annual gains. 

I just checked, it he value remaining is on my Notice of Assessment.

So, make sure you let RC know about the loss on your return this year.

Fire Artist is correct.

You can't claim it versus normal income, but by putting it on your taxes, it'll remain until you have capital gains at some point in the future, and you can cancel 15k of future capital gains whenever you choose to do so.

[K-ice]

So looking at the positive, I have kind of created a tax free savings account out of my regular investment account, at least in terms of capital gains, up-to the first earned $15,000 ....

I am always the optimist...

[RichMoose]

If you have existing unrealized capital gains in your non-registered account, you can realize some of them right away and immediately repurchase the shares. This will increase the ACB closer to today's price. Canada only has wash sale rules for claiming losses, not gains.

Ie. If you bought 1000 shares of RY.TO at $80 and now it's $108, a $28,000 gain. You could sell 530 shares, book the $15,000 capital gain and repurchase those shares at $108. Now your ACB on RY.TO would be around $95.

Something to consider so you don't have an effective tax credit with the CRA hanging around for years not being used.

[FIRE Artist]

If you have existing unrealized capital gains in your non-registered account, you can realize some of them right away and immediately repurchase the shares. This will increase the ACB closer to today's price. Canada only has wash sale rules for claiming losses, not gains.

Ie. If you bought 1000 shares of RY.TO at $80 and now it's $108, a $28,000 gain. You could sell 530 shares, book the $15,000 capital gain and repurchase those shares at $108. Now your ACB on RY.TO would be around $95.

Something to consider so you don't have an effective tax credit with the CRA hanging around for years not being used.

I disagree with your implying that there is a disadvantage to have the tax credit “hanging around for years not being used”, especially when you are still working and not yet selling off assets for retirement income.  Keeping a tax loss balance while working allows a person to buffer capital gains hits when at peak earning income and therefore peak tax.  This year is a perfect example - VXC estimate for capital gains distribution is $0.95/share (still waiting for my tax slips to confirm final word from Vanguard).  If I didn’t have a capital loss balance hanging around, my taxable income would be bumped up by 8K this year and I would be on the hook for paying tax on this money at my highest tax bracket.  That type of hit is completely out of my control as an ETF investor.  Having a capital loss credit hanging around also allows me greater control and flexibility in making conscious swaps in my taxable account, using that credit when and where it makes the most sense, not rushing to dump it into one asset like it is a hot potato.

[Missy B]

If you have existing unrealized capital gains in your non-registered account, you can realize some of them right away and immediately repurchase the shares. This will increase the ACB closer to today's price. Canada only has wash sale rules for claiming losses, not gains.

Ie. If you bought 1000 shares of RY.TO at $80 and now it's $108, a $28,000 gain. You could sell 530 shares, book the $15,000 capital gain and repurchase those shares at $108. Now your ACB on RY.TO would be around $95.

Something to consider so you don't have an effective tax credit with the CRA hanging around for years not being used.

I disagree with your implying that there is a disadvantage to have the tax credit “hanging around for years not being used”, especially when you are still working and not yet selling off assets for retirement income.  Keeping a tax loss balance while working allows a person to buffer capital gains hits when at peak earning income and therefore peak tax... Having a capital loss credit hanging around also allows me greater control and flexibility in making conscious swaps in my taxable account, using that credit when and where it makes the most sense, not rushing to dump it into one asset like it is a hot potato.

This. My carried-forward losses have come in very, very handy. Also, why are you hanging on to the other half of this stock? Expecting it to recover?

[K-ice]

Thanks for all the advice. I now understand how I can later use the capital loss and I have since received the bank statement confirming the loss. (Yippee /s)

Also, why are you hanging on to the other half of this stock? Expecting it to recover?

Doh, busted!

I have kept them because of:
A buy and hold philosophy.
I don't need the money now.
Don't sell when stocks are down.

But then there are the other arguments. 
Don't own single stocks.
If you wouldn't buy it today, sell it.

I sold 1/2 as a bit of an experiment last year. VDY is up 9% and the other stock is down 26%. It's been a kind of "fun" to watch them diverge experiment. A priceless lesson in not owning individual stocks.  This is with less than 10% of my net worth so I am not too panicked. A better understanding of the capital loss should help me move forward.

[Goldielocks]

If you die, capital loss can be claimed on your final return.

Each year you don't use the capital loss, it declines in real value by the rate of inflation, so they are best to use up over 3-5 years, unless you are intentionally planning to absorb a large gain  that would push you into another tax bracket, from something not sub-dividable, like a property sale in 5+ yrs.

Note-- you can aslo plan to absorb this if you have high income and some open RRSP room.

[Blissful Biker]

We are relatively new entrants into the world of taxable investments, having reached our RRSP and TFSA limits in 2018.

With the current COVID-19 market drop I am thinking of trying my hand at tax loss harvesting. 

We have only one fund in the taxable account, VCN, and it is showing a loss of $8.4K on Investorline


I am thinking of selling the whole thing and buying XIC tomorrow.  They seem fairly similar, broad Canadian equity funds.

Similar to the OP I'm not quite sure what I will do with the capital loss but it sounds like a good thing to have in my back pocket.

Not having done it before, I am a little nervous.  Do I need to be tracking on a spreadsheet or will BMO send me a statement?  Will the government automatically know or do I need to tell them?  Does XIC for VCN sound OK?

Thanks for any input!  I am keen to get the experience now while our taxable account is still small.

[Mighty Eyebrows]

Does XIC for VCN sound OK?

They track slightly different indices, so that makes them an acceptable pair. You will need to do a proper ACB calculation as CRA (or the brokerage) will not know your actual losses.

Learn more from Justin Bender:
https://www.canadianportfoliomanagerblog.com/part-i-introducing-tax-loss-selling/
https://www.canadianportfoliomanagerblog.com/part-2-when-should-you-sell-your-losers/
https://www.canadianportfoliomanagerblog.com/part-3-two-takes-on-tax-loss-selling-justwealth-vs-pwl/
https://www.canadianportfoliomanagerblog.com/part-4-which-etf-pairs-should-i-use-when-tax-loss-selling/

[Goldielocks]

If you don't have a plan to use the capital loss in the next 3 years, then I would just leave it.  It is a wash when you buy a new stock that is fairly equivalent to the old one, you get the capital loss, but then end up with higher gains that cancel it out.

[Blissful Biker]

Ah, thanks.  Good advice.  I'll read through the Justin Bender links to learn more and Goldie locks makes a good point - it'll be a wash.  Not going to make any trades today!

Sure appreciate your help.