Tax-Loss Selling with ETFs 

@Francis Caron - I'm so glad you stumbled across the channel (and the blog!). Thank you so much for taking the time to check it out :)

@Ken Lee - I'm so glad you liked the video! Thanks for watching :)

@F.I.R.E We Go! - You're very welcome - thanks so much for watching! :)

@Imran Khan - It was my pleasure - thanks for checking out the video :)

@yinyanz - thanks! If you're digging this topic, also check out my buddy Dan Bortolotti's recent blog post on superficial losses: canadiancouchpotato.com/2020/10/22/how-to-avoid-superficial-losses/ I love the adjustedcostbase.ca for tracking your ACB and calculating your capital gains/losses in a non-registered account. You can also export the data to excel.

@Wang Hui - Thanks! :)

@Steven - Capital losses are generally not tax-deductible against income (except in very limited cases), but they can be used to offset realized capital gains :)

@dilon3 - Thank YOU for watching! :)

@Antoine Lamoureux-Auclair - In my opinion (which CRA may disagree with), VEQT and XEQT are not identical ETF pairs (so you could use them for tax-loss selling purposes). Their underlying ETFs do not follow the same indexes in the same weightings.

@Mikael Haller - As long as you sell all units in your non-registered account, you don't need to worry that you purchased some of the units within 30 days (you only need to worry about units of the same ETF that you purchased in your RRSP, TFSA, etc. and still hold at the end of the 30-day period).

@@JustinBenderCPM Thank you for the reply. Just a quick follow up. If my spouse and I were to set up a margin account and hold a Canadian ETF with the idea of harvesting a capital loss during a downturn in the market, should we hold the same ETF? In other words, would it make sense to both hold VCN with the idea of selling it and purchasing XIC later? I worry that if we use different ETFs in our margin account and then sell, we might buy the identical property my mistake and trigger a superficial loss. By holding the same ETF, at least, it would reduce some of the work trying to figure out proper ETF pairings. Is this thinking correct?

@@mikaelhaller9113 - That should be okay from a tax-loss harvesting perspective. However, if they are joint accounts (i.e. Mikael/spouse + spouse/Mikael), this could cause your ACB tracking to be much more complicated (as it would need to be calculated across both joint accounts).

@@JustinBenderCPM Thank you for the quick reply. They are not joint accounts for the reason you mention above.

@Sahill Mohan - Generally, the capital gains distributions are reinvested by the ETF provider (but they don't necessary need to be). Looking at one year of capital gains distributions doesn't tell us much about future tax years. Even in 2019, the BMO Discount Bond Index ETF (ZDB) distributed a surprise capital gains hit to taxable investors of $0.17 per unit. I haven't known the CRA to chase down many superficial loss villians, but I don't think I would test them ;) As you mentioned, keeping track of this stuff is a nightmare. Our team had a blast tax-loss selling during the recent pandemic. We had to review the transactions in all our client's accounts, their corporate accounts, their trust accounts, their spouse's accounts and their RESPs. And if we had purchased shares of VCN (or some other target ETF) in their spouse's TFSA within the 61-day period (which we often had), we were required to sell the shares we purchased in the spouse's TFSA before the end of the 61-day period.

@Leo C. - VXC and XAW are even better tax-loss selling pairs than before! VXC recently reduced its fees and started holding VIU (instead of U.S.-based international equity ETFs), so it now has comparable tax-efficiency to XAW (i.e. less withholding tax drag than its earlier structure).

@Nico H - You wouldn't want a DRIP running on the security you're selling at a loss in the taxable account (as it may cause more units to be purchased after your sale). If this does occur though, you can just sell those new units within 30 days. You also want to ensure you do not have a DRIP running on the same security that you're selling in the taxable account and that you also hold in other accounts (like your spouse's accounts, your RRSPs, TFSAs, etc.).

@@JustinBenderCPM Thanks for the info! Appreciate it.

@Kunal Gupta - You can sell individual stocks at a loss and immediately purchase an ETF that holds that particular stock (it's not considered a superficial loss).

Ayon De - Haha - although I am the recorded voice of Sub-Zero Returns, I'm not the one behind the mask ;) 10% might be a bit too high of an expectation (we're currently forecasting around 5-6% equity returns going forward): ru-vid.com/video/%D0%B2%D0%B8%D0%B4%D0%B5%D0%BE-BXUeagi_WT8.html I don't advocate any actively managed ETFs, including ARKK. There will always be a handful of ETFs that outperform a passive investment strategy - you just won't be able to predict them in advance (unfortunately, you can't eat ARKK's past returns).

@Sébastien Desforges - Although I've read from others online that they think an ETF pair like VEQT and XEQT would be considered identical property by CRA, I completely disagree. As you mentioned, their underlying ETFs follow none of the same indexes, their fees are different, their allocation to Canadian vs. foreign equities is different, etc. In my personal opinion, CRA wouldn't have a leg to stand on if they went after an investor that used XEQT and VEQT for tax-loss selling purposes.

@@JustinBenderCPM Okay, thanks a lot Justin! Very much appreciated.

@Bruno Alves - For sure! There are a number of reasons: 1. You'll likely need to rebalance your portfolio, triggering capital gains in the process. 2. Many ETFs will distribute capital gains at year-end (which are usually reinvested back into the fund), so your losses can offset the taxes on these surprise distributions. 3. Cheaper or more tax-efficient securities may be released, which could be more suitable for your portfolio (but switching to the new security could generate capital gains in the process, unless you have losses to offset them with).

@@JustinBenderCPM Many thanks, Justin. Your video is so applicable now in this market down turn.

@Nicolas van Hell - In your example, selling at $35 would still trigger a $5 capital gain per share (at least in Canada). As you mentioned, Canadians need to use the average cost of the security for tax purposes (we can't pick which lot to sell).

@@JustinBenderCPM Thanks!

@SakuraPop - If you're trading broad-market ETFs, there shouldn't be any issues with liquidity (even for larger amounts) - but make sure you use limit orders. However, you may need to adjust your limit order if the price changes while your trade is being filled.

@Dmitry D - Thanks for watching. I've included my responses to your questions below (with the exception of #2, which requires more clarity): 1. Mostly to save time. Tax-loss selling also does not apply to RESPs, RDSPs, RRIFs, LIRAs, LRSPs, LIFs, LRIFs (and any other registered plans) 2. Not sure what you mean by this question - would you please clarify? 3. There is no limit to the amount of capital loss you can realize.

​@@JustinBenderCPM How efficiently to use this Offset taxable capital gains? Basically this tax-loss selling strategy is for short term investment less that 3 years , correct? Otherwise I don't see any other reason to do it.

@Dmitry D - No, tax-loss selling can have benefits for decades - it would depend how long you can defer the gains for. You may also be able to defer gains into retirement, where you may be taxed at a lower rate (which could further amplify the overall benefits of the strategy). If you can offset capital gains that you've realized, you will pay less in taxes now. This will allow you to keep more money in your portfolio to compound over time (if you would have needed to withdraw from it to pay your tax bill), or it could allow you to save an additional amount in your portfolio (as it wouldn't be required for the additional capital gains tax bill). I also mention many other benefits of the strategy in the video.

@@JustinBenderCPM Sorry, I missed the word "indefinitely" on 2:20. What did you mean on 2:20 "losses can be carry back for up to 3 years"? Can you please give us example.

​@@QualitativeInvestor - Say you realized $30,000 of capital losses in 2020 (and didn't realize any capital gains that year). Further assume you realized $30,000 of capital gains in 2017 (3 years before 2020). If you were a top rate Ontario taxpayer in 2017, you would have paid an additional $8,030 of taxes that year ($30,000 capital gain x 50% capital gain inclusion rate x 53.53% top Ontario tax rate = $8,030). If you submitted a T1A form to CRA to carry back your 2020 capital loss of $30,000 to 2017, the CRA would write you a check for $8,030 (which you could reinvest back into your portfolio).

@Allen Tripathi - "Wash-sale rule" and "superficial loss rule" are typically used interchangeably (but the term "superficial loss" is used more often in Canada)

@@JustinBenderCPM Thanks a lot!

@Jean-Claude Bertrand - as XIC follows the S&P/TSX Capped Composite Index, while VCN follows the FTSE Canada All Cap Index, they would generally not be considered identical property, based on CRA's interpretation bulletin (so this would avoid the superficial loss rules).

@Dylan Ennema - Selling SOXX at a loss and purchasing SMH shouldn't be considered a superficial loss, as they track different indexes (although I'm not certain about the tracking error between the two). Tax-loss selling works best when using broad-market equity or bond ETFs that track slightly different indexes.