Why read this?

  • Your client lost money on an investment
  • Your clients made money on an investment this year, or in the past three years

Why is it helpful?

  • When your client sells an asset, she’ll have to pay tax on half her gains. If another investment lost money, it can offset her capital gains and she’ll only pay tax on half of any remaining profit.
  • Harvesting commonly applies to securities, but losses from personal loans, private business investments or real estate investments could also qualify.

What to do?

Rules

  1. Capital losses must be used against current capital gains before being carried back.
  2. Capital losses can be carried back three years, or forward indefinitely.
  3. Capital losses incurred in prior years must be used in chronological order, starting with the earliest.
  4. Applying a 2013 loss to a previous gain will reduce your clients’ taxable income for the prior year. Your client’s net income, which is used to calculate credits and benefits, won’t change.

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