Unload worthless stock

September 3, 2013 | Last updated on September 3, 2013
1 min read

Despite the best planning and practices, sometimes you end up stuck with worthless stock.

Those worthless shares can’t even be traded because the issuing company is insolvent, going through bankruptcy, or closing up shop.

There’s still a way to use them.

At the end of the calendar year, you can dispose of them for $0 on December 31 by attaching a signed letter with your tax return notifying the Canadian Revenue Agency that you’re making this “phantom transaction.”

Then, on January 1, you’ll immediately re-acquire the same shares for $0, also by attaching a letter to that year’s tax return. This lets you claim a capital loss for the original purchase price.

This works if the shares are of a publicly traded company. If you have shares of a qualified small business corporation, and are in a similar situation, you can use an Allowable Business Investment Loss. That loss can then be applied against capital gains and all other types of income for that year.

The option to dispose of worthless shares may not be available to you if the shares are of a company under cease-and-desist orders, or if you received shares in exchange for disposing of personal property.

Still, in most cases, this strategy can provide a silver lining to an otherwise unfortunate situation.