Tax-Loss Harvesting Strategies

Introduction
Understanding tax-loss harvesting strategies is essential for Canadian investors, high-net-worth individuals, day traders, real estate investors, business owners, and anyone with taxable investment portfolios. Tax-loss harvesting allows investors to strategically sell losing investments to offset realized capital gains and reduce income tax. This is one of the most powerful year-end tax planning tools available — but only when used correctly. CRA has strict rules surrounding superficial losses, affiliated persons, repurchases, and the timing of transactions. Québec applies its own capital loss reporting under TP-1. This guide explains everything Canadians must know about tax-loss harvesting strategies and how to use them safely and effectively.

Legal and Regulatory Framework
Tax-loss harvesting strategies are governed by the Income Tax Act, CRA Interpretation Bulletins, capital-gains taxation rules, the superficial loss rule under section 54, T1 federal capital gains schedules, TP-1 Québec capital gains reporting, T5008 security statements, RRSP and TFSA investment rules, and corporate taxation rules for investment holdings. CRA requires strict documentation of adjusted cost base (ACB) and disallows losses that violate timing rules.

What Is Tax-Loss Harvesting?
Tax-loss harvesting involves selling investments that have decreased in value to realize a capital loss. This realized loss can offset capital gains from other investments or be carried forward to future years. Because only 50 percent of capital gains are taxable in Canada, harvesting losses can save significant tax.

When Should You Use Tax-Loss Harvesting?
Tax-loss harvesting is most effective when:
you realized large capital gains during the year
you are expecting a high-income year
investments declined and no longer fit your strategy
you want to rebalance your portfolio
you need to reduce tax before December 31 (individuals must realize losses by year-end)

Eligible Capital Assets for Tax-Loss Harvesting
stocks and ETFs
mutual funds
bonds and fixed-income assets
cryptocurrency (if held in taxable accounts)
precious metals
rental real estate (in certain circumstances)
Losses from TFSAs and RRSPs are not deductible.

The Superficial Loss Rule (Critical)
CRA’s superficial loss rule disallows a capital loss if:
you repurchase the same investment
your spouse or an affiliated corporation repurchases it
a trust or RRSP/TFSA controlled by you repurchases it
within 30 days before or after the sale
AND you still own the investment after the 30-day period
If triggered, the loss is denied and added back to your adjusted cost base (ACB), affecting future gains.

How to Avoid the Superficial Loss Rule
sell the investment and wait more than 30 days before repurchasing
use a similar (not identical) investment — for example:
sell an S&P 500 ETF and buy a different S&P 500 ETF from another provider
avoid repurchasing in your TFSA or RRSP
ensure your spouse does not repurchase the investment
track ACB carefully
Avoiding the superficial loss rule is central to proper tax-loss harvesting strategies.

Offsetting Capital Gains
Capital losses may offset:
current-year capital gains
capital gains from the last three years (carryback)
future capital gains indefinitely (carryforward)
Losses cannot offset other types of income unless special rules apply.

Harvesting Losses to Rebalance a Portfolio
Tax-loss harvesting can be combined with:
rebalancing equity exposure
shifting sector weightings
adjusting risk levels
moving into similar investments
This allows investors to maintain market exposure while realizing tax benefits.

Crypto Tax-Loss Harvesting
Crypto assets held in taxable accounts (not TFSA/RRSP) can be used for loss harvesting:
APA-based valuation applies
crypto-to-crypto trades trigger gains and losses
superficial loss rules also apply to crypto
Be careful not to repurchase within 30 days.

Real Estate and Tax-Loss Harvesting
Real estate losses are more complex. Losses can be realized on:
rental properties sold for less than ACB
non-depreciable property
However, CCA claims and recapture rules must be analyzed carefully.

Corporate Tax-Loss Harvesting
Corporations may harvest capital losses to offset capital gains inside the corporation. Losses do not flow through to shareholders individually. Corporate tax-loss harvesting requires additional documentation and T2 schedules.

Timing and Deadlines
For individuals, tax-loss harvesting must occur before December 31.
For corporations, the deadline is the fiscal year-end.
T+2 settlement rules apply — meaning trades must settle before year-end, not just be executed.

ACB Tracking — The Foundation of Loss Harvesting
Accurate adjusted cost base tracking ensures:
proper calculation of gains and losses
avoidance of over-reporting or under-reporting
CRA audit defense
ACB must include:
purchase price
commissions
reinvested distributions
currency adjustments
CRA and ARQ compare T5008 slips with reported ACB.

When Not to Use Tax-Loss Harvesting
tax-loss harvesting is counterproductive when:
you expect investment to rebound strongly
you risk triggering superficial loss rules
you harvest losses in TFSAs or RRSPs (worthless since losses aren’t deductible)
you’re triggering a taxable event with little tax to offset
you’re selling long-term core holdings unnecessarily

Common Mistakes in Tax-Loss Harvesting
repurchasing too soon, triggering superficial loss
selling at a loss in TFSA or RRSP
incorrect ACB calculations
poor documentation
using leveraged ETFs incorrectly
forgetting settlement deadlines
spouses repurchasing accidentally
These mistakes often lead to denied losses during CRA audits.

Key Court and CRA Positions
CRA strictly enforces the superficial loss rule. Courts have upheld CRA’s denial of losses where indirect repurchases occurred through spouses, corporations, or RRSPs. CRA also wins cases involving incorrect ACB reporting and mismatched T5008 data.

Why CRA and Revenu Québec Audit Capital-Loss Claims
Capital-loss claims are high-risk areas because taxpayers may:
inflate losses
incorrectly calculate ACB
use superficial-loss loopholes
misreport crypto losses
CRA and ARQ cross-check brokerage and exchange data with returns.

Mackisen Strategy
Mackisen CPA provides complete tax-loss harvesting planning. We analyze capital gains across all accounts, calculate ACB correctly, identify loss-harvesting opportunities, avoid superficial loss traps, plan sale timing, prepare carryback requests, integrate Québec TP-1 rules, and optimize your investment tax strategy. We work with your financial advisor to ensure tax and investment coordination.

Real Client Experience
A Montréal investor with large capital gains needed loss harvesting; Mackisen identified tax-loss positions and reduced taxes significantly. An ETF investor triggered a superficial loss unknowingly; we corrected ACB and avoided reassessment. A crypto investor filed incorrect loss claims; Mackisen rebuilt ACB using blockchain data. A real estate investor used loss carryforwards strategically with our support.

Common Questions
Can capital losses offset employment income? No, only capital gains.
Do superficial loss rules apply to crypto? Yes.
Can I harvest losses in a TFSA? No — losses are not deductible.
How long can I carry losses? Indefinitely.
Is tax-loss harvesting legal? Yes — when done properly.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadians execute tax-loss harvesting strategies with precision, ensuring maximum tax savings, audit-proof reporting, and long-term investment optimization.