I have an unrealized loss of more than $15,000 on 500 BCE Inc. shares I bought several years ago for about $65 each. I want to sell them to claim the loss for tax purposes and then buy them back because I think the company is in a better financial position after cutting its dividend, and I believe the stock has hit bottom. Is this a good idea?
Selling losers to claim a capital loss is a popular tax strategy at this time of year. Given the more than 40-per-cent plunge in BCE’s BCE-T share price over the past three years, I’m pretty sure you’re not the only investor looking to salvage something positive from the stock’s collapse.
But before you pull the trigger, there are several things to keep in mind.
First, in order to claim the loss for tax purposes, you’ll need to wait at least 30 days before repurchasing the shares. If you buy them back before then, it will be considered a “superficial loss” in the eyes of the Canada Revenue Agency, and the capital loss will be denied. The purpose of the superficial loss rule is to prevent investors from selling shares and immediately repurchasing them solely for the tax benefit.
Some investors try to find loopholes in the superficial loss rule, but it’s a waste of time. The CRA has made it clear that you can’t get around the 30-day restriction by, for example, selling a stock in a non-registered account and immediately buying it back in a registered account. Nor can you have your spouse or common-law partner purchase it. Both of these scenarios would trigger a superficial loss.
What’s more, the restriction on purchasing identical shares also applies to the 30 days before you sell a stock. For example, you couldn’t buy an additional 500 BCE shares (for a total of 1,000) and then sell 500 shares a few days later. That would also qualify as a superficial loss.
In addition to being a pain in the behind, the 30-day waiting period raises a potential problem: If BCE’s stock price rises during the time you don’t own the shares, you’ll have to pay more when you repurchase them.
Fortunately, there are a couple of ways to mitigate this risk. One option is to purchase a similar, but not identical, security to hold until you buy back the BCE shares. For example, the Global X Equal Weight Canadian Telecommunications Index ETF RING-T has about one third of its assets in BCE, with the remainder split between Telus Corp. T-T and Rogers Communications Inc. RCI-B-T. If BCE rises, you’ll still have some exposure to the stock. Granted, you’ll also be exposed to Telus and Rogers, for better or worse.
Alternatively, you could take your chances and temporarily put the proceeds from your BCE sale into a high-interest savings account. This might even work in your favour if BCE’s stock declines during the 30-day window, which would allow you to buy it back at a lower price.
Should I move out of this apartment REIT, or stay put?
Which option is best? That’s impossible to know in advance, although I might be inclined to park my money in a HISA. Why? Well, plenty of other investors are also probably looking to sell their BCE shares for a tax loss this fall, which could keep a lid on the share price over the next month or two. But that’s just a guess; the market has a knack for doing the opposite of what people expect.
My advice: Don’t sweat the decision too much. After all, your main objective is to trigger the capital loss so you can apply it against capital gains and reduce your taxes owing. Remember that losses must first be applied against capital gains in the current year. Any remaining capital losses can be carried back up to three years, or forward indefinitely, to offset capital gains in other years.
Finally, be aware that if you want the capital loss to be recorded in the current year, you must sell your shares no later than Dec. 30. That’s because it takes one business day for trades to settle – that is, for the cash and shares to actually change hands. If you wait until Dec. 31 to sell, your trade will not settle until Jan. 2 – too late for the loss to be claimed for the 2025 tax year.
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.