Tax-Loss Selling: Opportunities when you have unrealized capital losses in your portfolio
An investment portfolio review to identify tax planning opportunities before the end of the year is always a wise decision. In this article, we’ll discuss the concept of tax loss selling, how it works and how to ensure losses you trigger can be claimed as intended.
How does “Tax Loss Selling” work?
Tax loss selling today can be used to free up additional cashflow when you file this year’s taxes next spring. If you recognize capital losses on your non-registered investments this year, they would first be used to reduce taxes by offsetting any capital gains realized in the same year.
Budget 2024 announced an increase* to the capital gains inclusion rate from one half to two thirds for individuals on the portion of the capital gains realized in the year that exceed $250,000 for individuals for capital gains realized on or after June 25, 2024. This change significantly increases the amount of tax owing on capital gains over $250,000.
Where possible, consider planning to trigger capital gains over multiple years to stay under the $250,000 threshold preserving access to the lower 50% inclusion rate. If it is not possible to spread the capital gains over multiple years, you may also want to consider triggering capital losses in the same year to offset the gains that may be over the $250,000 threshold to reduce the amount that will be subject to the two-thirds inclusion rate.