Your tricky tax-loss selling questions answered

Your tricky tax-loss selling questions answered

I recently sold TC Energy Corp. (TRP) at a loss to reduce my capital gains for this year. The trade settled on Nov. 24. I want to repurchase TRP after the required 30-day waiting period, and I also want to be a shareholder on the ex-dividend date of Dec. 30 so I get the next dividend. I’m cutting it pretty close. Any advice about how to time all of this?

First, let’s quickly review the tax-loss selling rules as they apply to your situation.

As you indicated, in order to claim the loss, you must not repurchase the shares within 30 calendar days of selling them. Otherwise, this would be considered a “superficial loss,” which you can’t use to offset capital gains. Technically, the waiting period extends from the settlement date of the sale to the settlement date of purchase. The settlement date – when the shares and cash actually change hands – is two business days after the transaction date.

On that basis, then, the earliest you could repurchase the shares would be Dec. 23, with a settlement date of Dec. 29. (Note that the Toronto Stock Exchange is closed from Friday Dec. 25 through Monday Dec. 28, which is why the settlement period is so long.) If you were to buy the shares on Dec. 22 or earlier, the settlement date would fall within the 30-day window and you would have a superficial loss.

Turning to TRP’s dividend, in order to receive the next payment you must be a shareholder of record on Dec. 31 (the “record date”). Because it takes two business days for a trade to settle, you must therefore purchase the shares on or before Dec. 29. If you wait until Dec. 30 to buy the shares, you will miss the next dividend. That’s why Dec. 30 is called the ex-dividend date – anyone who purchases on or after this date doesn’t get the dividend.

But why are you determined to purchase before the ex-dividend date? There is actually no advantage in doing so.

If you buy before the ex-date, yes, you’ll receive the next dividend. But on the ex-date the share price will adjust to reflect the fact that the next dividend is no longer included for investors who purchase the shares. TRP’s stock price won’t necessarily fall by exactly the value of the dividend on the ex-date – it could fall by more, less or even rise – because lots of other factors affect share prices. But the value of the dividend will effectively be stripped out of the market price.

Bottom line: As long as you time your purchase to avoid a superficial loss, it doesn’t matter whether you buy your TRP shares before, on or after the ex-dividend date.

When is the last day I can sell a stock to claim a capital loss for 2020?

You must sell a stock no later than Dec. 29 in order to claim a capital loss for the current tax year. That’s because a sale on Dec. 29 will settle on Dec. 31 – the last day of 2020. Capital losses must first be used to offset capital gains in the current year. Any remaining capital losses can be carried back up to three years, or forward indefinitely, to offset gains in those years.

I’m 70 years old and have shares with a $25,000 capital loss in a registered retirement savings plan. Is there a way to use this loss for tax purposes?

No. Investment losses in an RRSP, tax-free savings account or other registered account cannot be used to offset taxable capital gains in a non-registered account.

I own shares of Crescent Point Energy Corp. (CPG) that have dropped more than 80 per cent since I bought them several years ago. I want to sell them for the capital loss, but I am concerned the shares could rise over the next 30 days before I repurchase them. Can I sell the CPG shares in my non-registered account and immediately buy them in my tax-free savings account to get around the 30-day restriction?

No. Nor can your spouse – or a corporation controlled by you or your spouse – purchase the shares before 30 days have passed without triggering a superficial loss. What’s more, because the 30-day prohibition on buying identical shares extends both forward and backward from the settlement date of your sale – for a total of 61 days, including the settlement date – you couldn’t buy CPG shares in your TFSA now (with the intention of holding them indefinitely) and then sell the shares you’ve been holding in your non-registered account a few days later. That would also be considered a superficial loss.

But here’s an idea: If you’re concerned that CPG could rise after you sell it, you could sell CPG and immediately buy a different oil and gas producer – or an exchange-traded fund such as the iShares S&P/TSX Capped Energy Index ETF (XEG) – so that you won’t be left behind if the energy sector rises. After 30 days have passed you could sell the substitute investment, repurchase your CPG shares and still get to claim the capital loss on CPG.

E-mail your questions to jheinzl@globeandmail.com. I’m not able to respond personally to e-mails but I choose certain questions to answer in my column.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.

Published at Fri, 27 Nov 2020 23:00:02 +0000