Tax-Loss Harvesting for Canadian Investors

If you have investments in a non-registered (taxable) account, tax-loss harvesting is one of the simplest ways to reduce your tax bill. It’s not a loophole. It’s a legitimate strategy that most investors underuse.

What Is Tax-Loss Harvesting?

Sell investments that have declined in value to realize a capital loss. Use that loss to offset capital gains from other sales. The result: you pay less tax on your net gains.

How It Works in Canada

You sell an investment at a loss (proceeds minus ACB is negative).
That loss offsets capital gains from the same year.
If losses exceed gains, carry the net loss back up to 3 years or forward indefinitely.
Reinvest the proceeds in a similar (but not identical) investment to maintain your portfolio exposure.

The Superficial Loss Rule

This is the critical rule. If you sell an investment at a loss and buy the same or identical property within 30 calendar days before or after the sale (or your spouse does, or a corporation/trust you control does), the loss is denied.

The 30-day window applies in both directions: 30 days before the sale and 30 days after.

How to work around it:

Buy a similar but not identical investment (e.g., sell one Canadian equity ETF, buy a different one tracking a similar index)
Wait 31 days before repurchasing the same investment
Don’t have your spouse or corporation buy it during the 30-day window

When to Harvest

Year-end: Review your portfolio in December for unrealized losses before the tax year closes.
After a market downturn: Corrections create harvesting opportunities.
When you have gains to offset: Harvesting is most valuable when you have realized gains in the same year.

Important Notes

This only works in non-registered accounts. TFSA and RRSP gains/losses have no tax impact.
Selling at a loss inside a TFSA is actually harmful. You lose the contribution room permanently.
Track your ACB carefully after repurchasing. The denied loss under superficial loss rules gets added to the ACB of the repurchased shares.

Example

You bought ETF-A for $20,000. It’s now worth $15,000. You also sold ETF-B earlier this year for a $10,000 gain. By selling ETF-A, you realize a $5,000 loss, reducing your taxable capital gain to $5,000. At 50% inclusion and a 30% marginal rate, that saves you $750 in tax.

You immediately buy ETF-C (similar exposure, different product) to maintain your allocation.

Want help identifying tax-loss harvesting opportunities in your portfolio? Book a free consultation with FinGems.