I would like to claim a tax loss on my Toronto-Dominion Bank (TD) shares, but I still like the company and believe the stock will rebound over long-term. Is my only option to sell my TD shares and wait 30 days before repurchasing them?
It’s not your only option. If you’re worried that TD will rebound in the 30 days after you sell your shares, you could purchase a different bank stock to hold in the interim. That way, if bank stocks rally, you’ll participate in the gains. Alternatively, you could sell your TD shares and purchase an exchange-traded fund, such as the BMO Equal Weight Banks Index ETF (ZEB), that provides diversified exposure to the sector. After 30 days have passed, you could sell the bank ETF and repurchase TD, which would allow you to claim your TD loss for tax purposes.
Be aware that all of the big Canadian banks will be reporting fourth-quarter results this coming week, with Bank of Nova Scotia (BNS) up on Dec. 3, Royal Bank (RY) and National Bank (NA) on Dec. 4, and TD, Bank of Montreal (BMO) and Canadian Imperial Bank of Commerce (CM) on Dec. 5. Quarterly earnings often cause volatility in bank stocks, so you may want to wait until the dust settles before planning your next move. But that’s your call.
I was thinking of buying Atco Ltd. (ACO.X), which owns Canadian Utilities Ltd. (CU). Do you know if the tax-loss rules require me to wait 30 days before buying Atco if I sell Canadian Utilities?
I assume you’re asking the question because you have an unrealized capital loss on Canadian Utilities that you plan to claim for tax purposes. Good news: Because Canadian Utilities and Atco are separate companies, the 30-day waiting period would not apply.
To understand why, we need to explore the concept of a “superficial loss.” Under the Canada Revenue Agency’s rules, a superficial loss occurs when you – or a person affiliated with you – sells a capital property but “buys, or has a right to buy, the same or identical property … during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale.” The most common type of identical properties are “shares of the same class of the capital stock of a corporation or units of a mutual fund trust.”
In other words, selling a stock and buying back exactly the same stock within 30 calendar days (before or after the sale) would qualify as a superficial loss, which you could not claim for tax purposes. The rule is intended to prevent people from selling a stock and buying it back immediately for the sole purpose of creating a tax loss. Nor could you get around the rule by having an affiliated person – such as a spouse, common-law partner or a corporation that is controlled by either you or your spouse – purchase the identical stock within 30 days of the sale.
Getting back to your question, Canadian Utilities and Atco, although related, are not “identical” properties. Atco owns 52.7 per cent of Canadian Utilities (as of Dec. 31, 2023) but they are separate entities. So, selling one and buying the other would not create a superficial loss.
Keep in mind that, if you have capital gains in the current year, you must first use the capital loss to offset those gains. Any remaining losses may be carried back up to three years or forward indefinitely to offset gains in those years.
In your recent column about an investor sitting on a large, unrealized gain in Royal Bank stock, you failed to mention another option: The person could donate the appreciated shares to charity.
Excellent point! If you’re planning to give money to a registered charity, donating listed securities that have appreciated in value is a very tax-efficient strategy. In addition to avoiding capital-gains tax on the increase in the value of the shares, you’ll get a charitable tax credit for the full amount donated. At the federal level, the credit is 15 per cent of the first $200 donated, with donations above that threshold credited at 29 per cent. The provinces also kick in their own credits.
You can try the charitable tax credit calculator at canadahelps.org to estimate credits for different donation amounts in various provinces. For example, a $10,000 donation in Ontario would result in a credit of $3,975.78, or about 40 per cent. In Alberta, the same donation would receive a credit of $5,050, or more than 50 per cent. Remember, these credits are in addition to the capital-gains tax you will save on the donated securities. The credits are non-refundable, meaning they can be used to reduce your other taxes owing but will not be sent to you in cash.
(Note: The calculator does not cover all tax situations, including an increased credit rate for people in the highest tax bracket.)
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.