Tax Loss Selling

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Over the last few weeks, the financial market has taken a downturn amidst fears over Coronavirus.

Understandably, you are concerned with your portfolio, it’s important to stay level-headed to avoid making financial missteps. However, staying level-headed doesn’t necessarily mean you sit there and do nothing. In fact, one consideration you can look is taking an active tax management approach.

Tax loss selling is a strategy to crystallize or realize any capital losses in your non-registered accounts so it can be used to offset any capital gains. There is no benefit to selling in your tax free savings account (TFSA) or registered retirement savings plan (RRSP).

You can apply capital losses back 3 years or carry them forward indefinitely, therefore we’ve outlined several situations that make sense for tax loss selling.

To better understand how tax-loss selling works, imagine a scenario in which someone invests $100,000, putting $50,000 in “Investment A” and $50,000 in “Investment B.”

At the end of one year, Investment A has risen by $10,000 and is now worth $60,000. Investment B has declined by $10,000 and is now worth $40,000.

Without tax-loss selling, the investor has a realized gain of $10,000 from Investment A, and has a potential tax bill of $1,500 (assuming he or she sells the shares and pays the 15% capital gains tax on the profit).

On the other hand, with tax-loss selling, selling Investment B to offset gains from Investment A. At the end of the year, instead of paying a $1,500 tax, the investor only has a potential tax bill of $0, for a potential tax savings of $1,500.

With the investor’s tax liability reduced by $1,500, that savings becomes money that can be invested back in the portfolio, used to maximize RRSP contributions, pay off debt, or spend as one pleases. 

What Situations make sense for tax loss selling?

  • If you have an investment with a considerable capital gain, review through your current investments to see if there are any investments to sell at a loss.

  • Receiving a tax refund for a previous year. Keep in mind, you can apply capital losses back 3 years, therefore if you sold a property within the last 3 years for a considerable gain and paid the tax. This year, you could sell other investments at a loss and apply them back and get some tax paid back.

  • For tax deferral, with tax losses you can apply these losses back 3 years or carry them forward indefinitely, therefore you may want to trigger a loss today because if you are planning to sell that property in the next year or so, it may rebound and therefore you will lose the chance to offset the gains.

  • Lastly, you may have an investment in your portfolio that’s a dud. It might be time to move on and put your money into a different investment so that you can apply the loss in the future.

Tax Loss Selling is Complicated

There are specific conditions required by CRA that must be met in order for this strategy to work such as making sure your loss is not declared a “superficial loss” (these rules are very restrictive). A superficial loss is when you sell and trigger a capital loss, you cannot deduct the loss if you or an affiliate purchase an identical security within 30 days before or after your settlement date.

Another condition is that the sale of assets is prior to the year-end deadline (this varies by calendar year). You also need to make sure you have accurate information on the adjusted cost base (ACB) of your investment. When you file your taxes, any losses must be first used to offset capital gains in the current tax year, then any remaining losses can be carried back.

Before engaging in tax loss selling, you should contact us directly so we can make the strategy works for you.

Covid 19 Information for Plan Members

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The Coronavirus disease has created challenges across Canada and the world. It’s important to stay informed and educated so you’re equipped to take care of yourself, your family and your business.

We are ready to serve you and answer any questions you have about your employee benefits, insurance and investment. Please feel free to contact us if you have any questions. We are here for you.

For Employees:

Group Benefits Plans: Information about your group benefits plans, you can contact us directly as we work with multiple insurance companies to provide you with the benefits or your insurance benefits provider.

Travel Coverage under your Group Benefits Plan: Effective March 13, there is an official global travel advisory to avoid all non-essential travel outside of Canada until further notice. Since the Canadian government’s official global travel advisory travelling to a destination outside of Canada can impact your travel insurance coverage. We recommend you contact your emergency medical travel provider or contact us directly and we can help.

Short-term Disability Claims: In light of the current situation, the Canadian Life and Health Insurance Association (CLHIA) has created and distributed a Plan Member Confirmation of Illness Form that’s been created specifically for use when submitting a Short-term Disability (STD) claim if the absence is due to COVID-19 disease. The CLHIA has communicated with all insurers in Canada to make them aware of the custom form. All insurers will accept this form to initiate an STD claim.

If you’re submitting a STD claim because of COVID-19 disease, complete the form according to the instructions provided on the document and submit it to your insurer. If you’re not sure who the insurer of your disability benefits is, contact us. You can also use claim forms provided by the insurer, but we recommend using the CLHIA form as it’s specifically designed for the diagnosis of COVID-19. (The CLHIA is a not-for-profit, membership-based organization that represents 99% of Canada’s life and health insurance companies.)

Employee Assistance Program: If your group benefits plan includes an employee assistance program (EAP), you can access the service directly, the contact information is in your plan member booklet. If you’re not able to find this information, please contact us. An EAP can help you deal with difficult situations.

Federal Government Resources:

Contact Us

Covid 19 Information Centre

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The Coronavirus disease has created challenges across Canada and the world. It’s important to stay informed and educated so you’re equipped to take care of yourself, your family and your business.

We are ready to serve you and answer any questions you have about your employee benefits, insurance and investment. Please feel free to contact us if you have any questions. We are here for you.

For Plan Administrators
For Plan Members

Covid 19 Information for Plan Administrators

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The Coronavirus disease has created challenges across Canada and the world. It’s important to stay informed and educated so you’re equipped to take care of yourself, your family and your business.

We are ready to serve you and answer any questions you have about your employee benefits, insurance and investment. Please feel free to contact us if you have any questions. We are here for you.

Preparing your business in an emergency situation: If you have not prepared a business continuity plan, now is a good time to put one in place. The plan should outline the processes to minimize the impact on your business during an emergency situation.

Protect your employees: Be prepared, depending on your business, your employees might feel at risk to exposure to the Coronavirus. Make sure your employees are educated on prevention and symptoms. Please also make sure you are aware of your responsibilities as an employer. Resources are available on Employment and Social Development site.

Travel Coverage under your Group Benefits Plan: Effective March 13, there is an official global travel advisory to avoid all non-essential travel outside of Canada until further notice. Since the Canadian government’s official global travel advisory travelling to a destination outside of Canada can impact your travel insurance coverage. We recommend you contact your emergency medical travel provider or contact us directly and we can help.

Short-term Disability Claims: In light of the current situation, the Canadian Life and Health Insurance Association (CLHIA) has created and distributed a Plan Member Confirmation of Illness Form that’s been created specifically for use when submitting a Short-term Disability (STD) claim if the absence is due to COVID-19 disease. The CLHIA has communicated with all insurers in Canada to make them aware of the custom form. All insurers will accept this form to initiate an STD claim.

If you’re submitting a STD claim because of COVID-19 disease, complete the form according to the instructions provided on the document and submit it to your insurer. If you’re not sure who the insurer of your disability benefits is, contact us. You can also use claim forms provided by the insurer, but we recommend using the CLHIA form as it’s specifically designed for the diagnosis of COVID-19. (The CLHIA is a not-for-profit, membership-based organization that represents 99% of Canada’s life and health insurance companies.)

Employee Assistance Program: If your group benefits plan includes an employee assistance program (EAP), you can access the service directly, the contact information is in your plan member booklet. If you’re not able to find this information, please contact us. An EAP can help your employees deal with difficult situations.

Federal Government Resources:

Insurance Carriers and Benefit Providers

Contact Us

Coronavirus & Market Uncertainty – $82 billion in aid for Families and Businesses

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On March 18th, the Prime Minister, Justin Trudeau, announced a further $82 billion in support including $27 billion in direct support for Canadian workers and businesses. This is in addition to the $20 billion announced days earlier which includes $10 billion available through the Business Development Bank of Canada (BDC) to help small and medium-sized businesses.

To Support Canadians

Temporary Income Support for Workers and Parents

For Canadians without paid sick leave (or similar workplace accommodation) who are sick, quarantined or forced to stay home to care for children, the Government is:

  • Waiving the one-week waiting period for those individuals in imposed quarantine that claim Employment Insurance (EI) sickness benefits. This temporary measure will be in effect as of March 15, 2020.

  • Waiving the requirement to provide a medical certificate to access EI sickness benefits.

  • Introducing the Emergency Care Benefit providing up to $900 bi-weekly, for up to 15 weeks. This flat-payment Benefit would be administered through the Canada Revenue Agency (CRA) and provide income support to:

    • Workers, including the self-employed, who are quarantined or sick with COVID-19 but do not qualify for EI sickness benefits.

    • Workers, including the self-employed, who are taking care of a family member who is sick with COVID-19, such as an elderly parent, but do not quality for EI sickness benefits.

    • Parents with children who require care or supervision due to school closures, and are unable to earn employment income, irrespective of whether they qualify for EI or not.

Application for the Benefit will be available in April 2020, and require Canadians to attest that they meet the eligibility requirements. They will need to re-attest every two weeks to reconfirm their eligibility. Canadians will select one of three channels to apply for the Benefit:

  1. by accessing it on their CRA MyAccount secure portal;

  2. by accessing it from their secure My Service Canada Account; or

  3. by calling a toll free number equipped with an automated application process. Number to be provided

Longer-Term Income Support for Workers

For Canadians who lose their jobs or face reduced hours as a result of COVID’s impact, the Government is:

  • Introducing an Emergency Support Benefit delivered through the CRA to provide up to $5.0 billion in support to workers who are not eligible for EI and who are facing unemployment.

  • Implementing the EI Work Sharing Program, which provides EI benefits to workers who agree to reduce their normal working hour as a result of developments beyond the control of their employers, by extending the eligibility of such agreements to 76 weeks, easing eligibility requirements, and streamlining the application process. This was announced by the Prime Minister on March 11, 2020.

Income Support

For low and modest income families, the federal government will double the maximum annual Goods and Services Tax Credit (GSTC), providing an average income boost of:

  • $400 for low-income income individuals and

  • close to $600 for couples.

Canada Child Benefit (CCB)

The Government is proposing to increase the maximum annual Canada Child Benefit (CCB) payment amounts, only for the 2019-20 benefit year, by $300 per child. The overall increase for families receiving CCB will be approximately $550 on average; these families will receive an extra $300 per child as part of their May payment.

Together, the proposed enhancements of the GSTC and CCB will give a single parent with two children and low to modest income nearly $1,500 in additional short-term support.

Retirees

For Retirees, the required minimum withdrawals from Registered Retirement Income Funds (RRIFs) will be reduced by 25% for 2020, in recognition of volatile market conditions and their impact on many seniors’ retirement savings.

Students

6 month interest-free moratorium on the repayment of Canada Student Loans for all individuals currently in the process of repaying these loans.

Tax Filing Deadline deferred

For individuals (other than trusts), the return filing due date will be deferred until June 1, 2020.  However, the Agency encourages individuals who expect to receive benefits under the GSTC or the Canada Child Benefit not to delay the filing of their return to ensure their entitlements for the 2020-21 benefit year are properly determined.

For trusts having a taxation year ending on December 31, 2019, the return filing due date will be deferred until May 1, 2020.

The Canada Revenue Agency will allow all taxpayers to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020. This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period.

For Tax preparers and Taxpayers to reduce the need to meet, Digital Signatures will be accepted.

Mortgage Payment Deferral

Canada’s large banks have confirmed that this support will include up to a 6-month payment deferral for mortgages, and the opportunity for relief on other credit products.

To Support Businesses

Helping Businesses Keep their Workers

To support businesses that are facing revenue losses and to help prevent lay-offs, the government is proposing to provide eligible small employers a temporary wage subsidy for a period of three months. The subsidy will be equal to 10% of remuneration paid during that period, up to a maximum subsidy of $1,375 per employee and $25,000 per employer. Businesses will be able to benefit immediately from this support by reducing their remittances of income tax withheld on their employees’ remuneration. Employers benefiting from this measure will include corporations eligible for the small business deduction, as well as non-profit organizations and charities.

Flexibility for Businesses Filing Taxes

The Canada Revenue Agency will allow all businesses to defer, until after August 31, 2020, the payment of any income tax amounts that become owing on or after today and before September 2020.  This relief would apply to tax balances due, as well as instalments, under Part I of the Income Tax Act. No interest or penalties will accumulate on these amounts during this period. 

The Canada Revenue Agency will not contact any small or medium (SME) businesses to initiate any post assessment GST/HST or Income Tax audits for the next four weeks. For the vast majority of businesses, the Canada Revenue Agency will temporarily suspend audit interaction with taxpayers and representatives.

Financing for Businesses

The BDC provides financing for:

  • Small Business Loans – up to $100,000 can be obtained online – here

  • Get extra funds to bridge cash flow gaps and support daily operations with Working Capital Loans

  • Increase your cash flow to fulfill domestic or international orders with Purchase Order Financing

See More on BDC support for entrepreneurs
Canada’s COVID-19 Economic Response

Previously Announced Measures

To further support businesses and households, the Governor of the Bank of Canada, Stephen Poloz, cut the overnight rate to 0.75%.

For those with mortgages, the president of Canadian Mortgage and Housing Corporation (CMHC), Evan Siddall, announced that they are working with lenders to allow deferral of mortgage payments for up to 6 months

More details on mortgage deferral will be made available later this week.

For people quarantined due to COVID-19, the government eliminated the waiting period for EI Benefits; you can get up to $573 a week for an entire 14-day quarantine.

EI Benefits Details

If you need further, please contact me by clicking below:

Contact

Coronavirus & Market Uncertainty – Federal Government $20 billion economic aid package

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On March 13th, the Prime Minister, Justin Trudeau, outlined Canada’s response to COVID-19 including new investments to help protect Canadians and businesses. The total value of the aid package could be up to $20 billion across the country which includes $10 billion available through the Business Development Bank of Canada (BDC) to help small and medium-sized businesses.

The BDC provides financing for:

  • Small Business Loans – up to $100,000 can be obtained online – here

  • Get extra funds to bridge cash flow gaps and support daily operations with Working Capital Loans

  • Increase your cash flow to fulfill domestic or international orders with Purchase Order Financing

See More on BDC support for entrepreneurs

To further support businesses and households, the Governor of the Bank of Canada, Stephen Poloz, cut the overnight rate to 0.75%.

For those with mortgages, the president of Canadian Mortgage and Housing Corporation (CMHC), Evan Siddall, announced that they are working with lenders to allow deferral of mortgage payments for up to 6 months

More details on mortgage deferral will be made available later this week.

For people quarantined due to COVID-19, the government eliminated the waiting period for EI Benefits; you can get up to $573 a week for an entire 14-day quarantine.

EI Benefits Details

If you need further, please contact me by clicking below:

Contact