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June 13, 2024

Tax Tips

Review of Capital Loss Rules
Subject: Review of Capital Loss Rules
Number: 03-31
Date: 12/17/2003
Year-End Planning Considerations

There may be taxpayers who have realized capital gains. Unless they have capital losses carried forward from prior years, it is advisable to trigger any unrealized capital losses before the end of the year to shelter the capital gains from tax.

It is important that your client and/or a person affiliated with your client not acquire the identical property within 30 days before or after the sale. Otherwise, the capital loss will be a superficial loss and denied for tax purposes. The denied loss is added to the adjusted cost base of the property. An affiliated person includes the individual, his/her spouse, any company controlled by the individual and/or spouse and any partnership in which the individual is a majority interest partner. An affiliated person does not include children.

In those situations where your client is holding shares of a delisted company or of a private company, your client could sell the shares, at their fair market value, to a child. In this way your client triggers the loss, which may not otherwise be available as a result of holding non-publicly traded securities.

If your client transfers securities with an accrued loss to his RRSP, the loss will be denied, and there is no corresponding adjustment to the cost base of the security. As a result, a transfer to an RRSP of a property with an accrued capital loss is generally not advisable. Instead, your client might consider selling the loss property outside of the RRSP, and then using the cash proceeds to make a contribution to the RRSP. The RRSP can then reacquire those securities, assuming that your client still wishes to hold them.

TAX TIP OF THE WEEK is provided as a free service to clients and friends of the Tax Specialist Group member firms. The Tax Specialist Group is a national affiliation of firms who specialize in providing tax consulting services to other professionals, businesses and high net worth individuals on Canadian and international tax matters and tax disputes.

The material provided in Tax Tip of the Week is believed to be accurate and reliable as of the date it is written. Tax laws are complex and are subject to frequent change. Professional advice should always be sought before implementing any tax planning arrangements. Neither the Tax Specialist Group nor any member firm can accept any liability for the tax consequences that may result from acting based on the contents hereof.