WEALTH Matters — WINTER 2008

TAX-LOSS Selling

If your non-registered portfolio has contained equities for some time, then you have probably paid tax on investment gains realized during the good years. Now that equity assets have declined in the past 12-18 months, you may be able to use those losses to recover some of the income tax you paid in previous years.

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Making lemonade

tax-loss selling

Asset swap

Tax free savings account

Say you invested $100,000 in the AGF Canadian Stock Fund at the market peak July 2000. Even with the 2001-2 stock market decline, you still would have had a $12,000 gain by July 2005. Most of this gain was ‘unrealized’ because you still held the fund, and therefore income tax on those gains was deferred.

If you had sold units of that fund to re-balance your portfolio back to its target allocation, then you would have ‘realized’ the capital gains, and therefore triggered some tax payable on those gains.

If you made investments whose market value later declined, those positions may now be worth less than the original value. The ‘unrealized’ loss could be ‘realized’ by selling all or part of that position, and you can ‘carry back’ the loss to offset capital gains reported on a prior tax return up to 3 tax years prior to the year the loss is reported. This would reduce the tax due on that prior year’s return, and you would receive a refund in cash.

Even if you never sold a mutual fund during the good years, you still may have realized gains over the years. Each year when the portfolio manager made money on some of the stocks, and then sold them to take profits, the fund would have declared a capital gain to you for your share of the overall fund gain.

We can help you determine whether you are able to use a tax-loss selling strategy. Here are some of the technical issues:

· We need to look at your capital gains declared on your 2006, 7 and 8 returns and try to offset the oldest ones first.

· You must actually sell the shares or units that have the unrealized loss. Sell orders executed in 2009 will result in a loss to be declared on 2009 income tax, not 2008.

· You cannot buy back the exact same share or fund for 31 days. That’s a long time to be out of the market – if there is a sharp rally in the market, you would not want to miss it. We can suggest a fund with comparable holdings to the one you are selling so you won’t be out of the market.

Based on the gains you have reported for prior years, we can calculate how many shares you would need to sell to recover all capital gains taxes paid. You may not have enough losses to recover all of your taxes, or you may have more losses than you need. You may decide to sell more than you need because excess tax-losses can be ‘carried forward’ forever, reducing any future capital gains.

Also in this issue of Wealth matters:

Making lemonade

Asset swap

Tax free savings account

Remember, you can’t claim a tax refund due to a loss until you have filed a return to declare the loss. So if you haven’t triggered losses for your 2008 return, then any losses you realize in 2009 would be declared when you file your 2009 return in April 2010, and then you could claim a refund of taxes paid in 2006, 7 or 8, but you would lose the ability to carry the loss back to 2005 or earlier.

Mutual Funds and Segregated funds provided by Fund Companies offered through

Worldsource Financial Management Inc. sponsoring mutual fund dealer.

All other services provided by Page and Associates Ltd.



Carry-Forward Indefinitely

Carry-Back 3 Years




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