Investing

Selling mutual funds and superficial losses

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  • May 16th, 2022 9:14 pm
Deal Addict
May 11, 2003
2842 posts
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Selling mutual funds and superficial losses

I've got some bond mutual funds in my non-registered account that I'd like to sell. If I sold today, I would be taking a loss. I'd like to sell them all (fully divest) and then re-purchase them in my registered account.

I mostly want to "move" them to my registered accounts because of the yearly tax implications of the bond fund distributions but a capital loss wouldn't hurt either.

I wanted to ask:
1) Under the superficial loss rule, I would be able to claim the capital loss as long as I don't purchase any similar funds 30 days before or 30 days after I sell (including DRIPs and registered accounts). I get monthly distributions from my fund, but they are in more units - I never get cash. Are the monthly distributions given out by my mutual funds considered purchases? If so, it is even possible to stop those?

2) If I'm not interested in claiming the loss at all, does CRA even need to know about me selling it? It isn't a huge loss and the real goal is moving the fund into registered to save the tax on yearly distributions.
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9 replies
Deal Guru
Jan 19, 2017
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e-man wrote: I've got some bond mutual funds in my non-registered account that I'd like to sell. If I sold today, I would be taking a loss. I'd like to sell them all (fully divest) and then re-purchase them in my registered account.

I mostly want to "move" them to my registered accounts because of the yearly tax implications of the bond fund distributions but a capital loss wouldn't hurt either.

I wanted to ask:
1) Under the superficial loss rule, I would be able to claim the capital loss as long as I don't purchase any similar funds 30 days before or 30 days after I sell (including DRIPs and registered accounts). I get monthly distributions from my fund, but they are in more units - I never get cash. Are the monthly distributions given out by my mutual funds considered purchases? If so, it is even possible to stop those?

2) If I'm not interested in claiming the loss at all, does CRA even need to know about me selling it? It isn't a huge loss and the real goal is moving the fund into registered to save the tax on yearly distributions.
1) no choice , but to accept more units. Yes, every unit received from distribution is added to your cost base. So yes, same as additional purchase. If you don’t add to your cost base, then you will be double taxed.
2) no choice , but to report every sell transaction on your tax return, either have capital gain or loss.
Deal Addict
May 11, 2003
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ml88888888 wrote: 1) no choice , but to accept more units. Yes, every unit received from distribution is added to your cost base. So yes, same as additional purchase. If you don’t add to your cost base, then you will be double taxed.
My question was more along the lines of if CRA views the distribution as if it was a purchase. The superficial loss rule is applied if you make a purchase of an equivalent asset 30 days before you sell. So if I keep getting a distribution every month and they are considered a purchase, how would I ever be able to claim a loss?
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Dec 12, 2009
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e-man wrote: My question was more along the lines of if CRA views the distribution as if it was a purchase. The superficial loss rule is applied if you make a purchase of an equivalent asset 30 days before you sell. So if I keep getting a distribution every month and they are considered a purchase, how would I ever be able to claim a loss?
Dividend reinvestment is a personal choice. I would imagine that in the strictest interpretation, it would be considered in the superficial loss ruling.
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May 2, 2019
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e-man wrote: My question was more along the lines of if CRA views the distribution as if it was a purchase. The superficial loss rule is applied if you make a purchase of an equivalent asset 30 days before you sell. So if I keep getting a distribution every month and they are considered a purchase, how would I ever be able to claim a loss?
You still could claim a loss, that's no problem at all. The definition of superficial loss includes buying a replacement within 30 days (before or after) and keeping that substituted property until 30 days after the sale. That second part would not happen if you sell all, so no superficial loss. Just don't sell a few days before the next redistribution to avoid mix-ups.

You can buy a fairly similar mutual fund in your registered account right away, as long as it's not the same fund (or one considered to be identical, which is very unlikely, maybe only if it tracks exactly the same index).

Whether to claim the loss at all, is up to you, the CRA won't care if you don't. Monthly reinvestment can complicate calculations: you'll need to include the value of each one to ACB, or perhaps not fully in a more complex case if a part of distributions was classified as Return of Capital. On the other hand, your loss to claim may be bigger than you realize due to those reinvested distributions. You already paid (or due to) tax on them, so it may be worthwhile to recover some of that via capital losses.
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May 11, 2003
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yvrbanker wrote: You still could claim a loss, that's no problem at all. The definition of superficial loss includes buying a replacement within 30 days (before or after) and keeping that substituted property until 30 days after the sale. That second part would not happen if you sell all, so no superficial loss. Just don't sell a few days before the next redistribution to avoid mix-ups.

You can buy a fairly similar mutual fund in your registered account right away, as long as it's not the same fund (or one considered to be identical, which is very unlikely, maybe only if it tracks exactly the same index).

Whether to claim the loss at all, is up to you, the CRA won't care if you don't. Monthly reinvestment can complicate calculations: you'll need to include the value of each one to ACB, or perhaps not fully in a more complex case if a part of distributions was classified as Return of Capital. On the other hand, your loss to claim may be bigger than you realize due to those reinvested distributions. You already paid (or due to) tax on them, so it may be worthwhile to recover some of that via capital losses.
Ah. I see. So I don't have to worry about the distributions as long as I clear out the mutual fund 100% (which I will do). However, I can't purchase an identical fund and keep it and will have to stop my DRIPs for identical funds for the 30 days before and after (even if I could prove the bond funds aren't identical, stopping them temporarily would be the safer bet).

One thing I don't understand about the loss rule is where is says "has a right to buy, the substituted property 30 calendar days after the sale". What does that mean? That part suggests I can't claim the loss because I merely have the right to buy it.
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May 2, 2019
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e-man wrote: However, I can't purchase an identical fund and keep it and will have to stop my DRIPs for identical funds for the 30 days before and after (even if I could prove the bond funds aren't identical, stopping them temporarily would be the safer bet).

One thing I don't understand about the loss rule is where is says "has a right to buy, the substituted property 30 calendar days after the sale". What does that mean? That part suggests I can't claim the loss because I merely have the right to buy it.
Yes, DRIPs for identical funds can complicate things even if DRIPs are in a registered account. Personally, I try to avoid identical properties in registered and non-registered accounts, so superficial losses are not an issue, also avoiding DRIPs in non-registered for simpler calculations.

As for "a right to buy", it's definitely not about your liberties as a market participant, but about a formal contract or privilege you could own. Nothing like that is applicable for mutual funds. For a closest and most popular analogy, think of stock options if you know what I mean. For stocks, there are options/rights/warrants, each of which can be a formal right to buy that stock under certain conditions.
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Jul 8, 2013
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Wow, no one has said this yet (and someone please confirm if this is correct): you can sell from non-reg and claim a "capital Loss" and buy in your RRSP right away.

Capital gains/losses do NOT apply to RRSP. If capital gains/losses do not apply, then the above point is valid.

For ex: I sell Saputo in my non-reg account for a $1K loss. I can claim that loss when I do my tax return irrespective of whether I buy more in my RRSP.
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Dec 12, 2009
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TuxedoBlack wrote: Wow, no one has said this yet (and someone please confirm if this is correct): you can sell from non-reg and claim a "capital Loss" and buy in your RRSP right away.

Capital gains/losses do NOT apply to RRSP. If capital gains/losses do not apply, then the above point is valid.

For ex: I sell Saputo in my non-reg account for a $1K loss. I can claim that loss when I do my tax return irrespective of whether I buy more in my RRSP.
See page 5.

https://ca.rbcwealthmanagement.com/docu ... 633567121a
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Deal Addict
May 11, 2003
2842 posts
720 upvotes
TuxedoBlack wrote: Wow, no one has said this yet (and someone please confirm if this is correct): you can sell from non-reg and claim a "capital Loss" and buy in your RRSP right away.

Capital gains/losses do NOT apply to RRSP. If capital gains/losses do not apply, then the above point is valid.

For ex: I sell Saputo in my non-reg account for a $1K loss. I can claim that loss when I do my tax return irrespective of whether I buy more in my RRSP.
Ha ha. That thinking was precisely how this whole thing started. Thought it was a bit of tax loophole and, sure enough, it was (or wasn't, since you can't do it).
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