Five questions investors must ask themselves now
TORONTO, Oct. 23 /CNW/ - As Canadian investors tally their losses amidst
the global financial crisis, it's crucial to understand the benefits - and
pitfalls - of tax-loss selling.
"By selling securities with accrued losses before the end of the year,
investors can soften the blow of market downturns and bad investment
decisions," explained Gena Katz, Executive Director at Ernst & Young.
"Tax-loss selling can put money back in your pocket by reducing your 2008 tax
bill or triggering a refund for a previous year. But there are important
considerations to make before you choose to realize paper losses."
What do you need to know? Ernst & Young encourages investors to ask
themselves some key questions before taking advantage of tax-loss selling:
1. Are taxes driving your investment decision? Selling a security should
not be primarily tax-motivated. It must make sense from an investment
perspective. Review your investment portfolio carefully, consider the
timeframe over which an investment might rebound, and if a repurchase
is planned, consider transaction costs and the risk the security will
increase in value before repurchase.
2. Can you really benefit from the loss? Tax-loss selling only provides
current savings if you otherwise expect to have net taxable capital
gains for 2008, or have reported net taxable capital gains on your
2005, 2006 or 2007 tax returns. So review your trades in 2008 and
your tax returns for the three previous years to determine if you can
use the loss currently.
3. Do you know about superficial loss rules? There are stringent rules
that can sometimes mean a loss is denied, if the same security is
acquired within 30 days of the sale. You need to be aware of these
rules before making any decisions.
4. Could your spouse benefit from your loss? In some cases, you could
use the superficial loss rules to transfer the loss to your spouse or
partner. You need to explore your particular situation to understand
5. Have you checked your calendar? The last day to execute a trade on a
Canadian exchange that would settle in 2008 is Wednesday,
December 24. So if you'd like to take advantage of tax-loss selling,
you only have two months to find the answers to the above questions
and set the wheels in motion.
About Ernst & Young
Ernst & Young is a global leader in assurance, tax, transaction and
advisory services. Worldwide, our 135,000 people are united by our shared
values and an unwavering commitment to quality. We make a difference by
helping our people, our clients and our wider communities achieve their
potential. For more information, please visit ey.com/ca.
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