# Does superficial loss rule apply here?



## slacker (Mar 8, 2010)

Hi,

I bought a stock on Feb 29th, 2016 in my margin account. I sold it on March 7th, 2016 at a loss.

Note. Prior to Feb 29th, I did not own the stock at all.

Does the superficial loss rule apply here?

In other words, if I bought a brand new stock, and then immediately sell it at a loss. Does the superficial loss rule apply?

Thanks,
Slacker


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## Nerd Investor (Nov 3, 2015)

I can't think of any reason the superficial loss rule would apply here.


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## slacker (Mar 8, 2010)

CRA has the following: http://www.cra-arc.gc.ca/tx/ndvdls/.../lns101-170/127/lss-ddct/sprfcl/menu-eng.html



> A superficial loss can occur when you dispose of capital property for a loss and:
> 
> - you, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called "substituted property") during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale; and
> - you, or a person affiliated with you, still owns, or has a right to buy, the substituted property 30 calendar days after the sale.


In this case, I disposed of capital property for a loss, and I bought the same property during the period 30 calendars before the sale.

In simpler words, one cannot claim capital loss, if you buy, and then sell the same stock within a 30 day period.

Am I reading it right?


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## mrPPincer (Nov 21, 2011)

I don't think it's superficial loss in your case Slacker, because of part b; you don't own (or have options on) those shares during the 30 days after the sale.


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## slacker (Mar 8, 2010)

Thanks. I failed to read the second part carefully. Since there is the word "and", both conditions would need to be satisfied for superficial loss.

Phew.


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## Eclectic12 (Oct 20, 2010)

Did you own that stock in a registered account (i.e. TFSA or RRSP) during this timeframe?

That's the only way I can see that it would be a superficial loss.


Cheers


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## slacker (Mar 8, 2010)

Luckily, no, I did not.


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## PDLD (Jan 3, 2014)

Hi all. 

A follow-up question...

On June 30, I sold all the Cameco shares in my non-registered account, and this generated a capital loss. As a result of my own stupidity, I accidentally repurchased 300 shares of Cameco today (July 25) before the 30 period superficial tax loss period expired, quickly realized my error, and placed a sell order for all 300 shares minutes later. Since it's Cameco, that also resulted in a small loss ;-). 

As I will no longer own any Cameco shares 30 days after the initial June 30 sell date (the settlement date for both buy and sell orders is July 28), I'm assuming I will have avoided triggering the Superficial Tax Loss rule. Am i correct?

Thanks in advance for any replies.


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## AltaRed (Jun 8, 2009)

An interesting question. My view would be if your broker reports the July 25th purchase and sale to the CRA (and on your Annual Trading Summary and/or T5008) and I think they most likely will (it's all computerized these days, then CRA would trigger the superficial loss rule. You could phone CRA and ask them. Otherwise, you could try and file your T1 General next year filling in Schedule 3 for only the first loss (the sale price on June 30). Whatever you do, don't try and capture the second loss (today's loss). That would be just plain greedy and cause CRA to disallow your first loss.

Added: I will resist asking why you would be screwing around with Cameco in the first place.


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## PDLD (Jan 3, 2014)

Thanks AltaRed. My understanding was that the second condition of triggering the Superficial Tax Loss rule was ownership of the shares at the end of the 30 day period after the initial sale. I was assuming (or hoping) that I had avoided this by not owning any shares on July 30. 

... and no, I had no intention of poking the bear by claiming the second (and very minor) loss. ... but do I not have to report all sales during the 2016 calendar on my 2016 return (regardless of whether I claim the loss)?

... and yes, I know I should stay away from falling knives like Cameco. You would have thought Teck had already taught me a lesson.


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## AltaRed (Jun 8, 2009)

PDLD said:


> but do I not have to report all sales during the 2016 calendar on my 2016 return (regardless of whether I claim the loss)?


Yes which was why I was mostly thinking out loud. I think it is worth a shot to explain your situation to a CRA agent (or two of them and see if the answer is the same) and see if they would let you "ignore" today's purchase and sale. Just a thought.


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## PDLD (Jan 3, 2014)

Thanks again.


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> An interesting question. My view would be if your broker reports the July 25th purchase and sale to the CRA (and on your Annual Trading Summary and/or T5008) and I think they most likely will (it's all computerized these days, then CRA would trigger the superficial loss rule ...


Agreed that there will be the superficial loss rule in play for the first buy/sell/re-buy, based on the description.

Unless something else comes into play like having the stock in registered accounts or repeating the bad timing for another re-buy - does it matter?

From what I recall, triggering the superficial loss rule means one can't claim the loss for *that* sale. One is to add the loss to the ACB of the shares re-bought at the wrong time.

Selling at yet another loss should net out to the two losses added together, where as I understand it .... respecting the 30 day rule means the second sale for a loss will not trigger the superficial loss rules.


Unless I am missing something ... since the timing of both sales are in the same year, the full loss should be claimable for this tax year.


Cheers


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## AltaRed (Jun 8, 2009)

Possibly but I certainly have never had to consider the nuances/details of the superficial loss rule. I think the situation is unique enough to get a CRA agent (or two) on the phone. Best to get an agent now....well before tax time.


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## PDLD (Jan 3, 2014)

Eclectic12 said:


> Selling at yet another loss should net out to the two losses added together, where as I understand it .... respecting the 30 day rule means the second sale for a loss will not trigger the superficial loss rules.
> 
> 
> Unless I am missing something ... since the timing of both sales are in the same year, the full loss should be claimable for this tax year.
> ...


The applicable section (from CRA website) states:

"A superficial loss can occur when you dispose of capital property for a loss and:

- you, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called "substituted property") during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale; *and*
- you, or a person affiliated with you, still owns, or has a right to buy, the substituted property 30 calendar days after the sale."

I have clearly contravened the first condition, but not the second, since I will not own the shares on the 30th (or the 29th) of July. Since the two conditions are joined by the word "AND", I'm still assuming I'm off the hook. As mentioned earlier, I will report the second purchase/sale but not claim it as a loss, only the first (and much larger) one.

In any case, I will check with CRA before tax time next year.... and never buy Cameco again ;-).

Thanks again to both of you. As a long-time lurker, I enjoy reading all your posts.


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## jdc (Feb 1, 2016)

PDLD said:


> I have clearly contravened the first condition, but not the second, since I will not own the shares on the 30th (or the 29th) of July. Since the two conditions are joined by the word "AND", I'm still assuming I'm off the hook. As mentioned earlier, I will report the second purchase/sale but not claim it as a loss, only the first (and much larger) one.


You can claim both losses because you do not own any shares in the company after 30 days. 

You never really permanently lose out on the capital loss even if you had still owned the same stock 30 days later. In that case, the loss on the initial sale would not be allowed, but the ACB of the second purchase would be adjusted by the amount of the loss that was disallowed under the superficial loss rule, in effect increasing your reported cost of the second purchase. When your second purchase was eventually sold, you would calculate the gain or loss using the revised ACB. 

The ability to claim the loss isn't actually lost, it is simply deferred.


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## PDLD (Jan 3, 2014)

jdc... Interesting, thanks very much.


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## jdc (Feb 1, 2016)

I should have noted that the ability to claim the loss in an unregistered account would be permanently lost if you held the same stocks in a registered account after 30 days. This is because the ACB of the registered shares would be adjusted upwards, but without impact because capital gains / losses are not calculated for registered funds.


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## Eclectic12 (Oct 20, 2010)

PDLD said:


> ... I have clearly contravened the first condition, but not the second, since I will not own the shares on the 30th (or the 29th) of July. Since the two conditions are joined by the word "AND", I'm still assuming I'm off the hook. As mentioned earlier, I will report the second purchase/sale but not claim it as a loss, only the first (and much larger) one.


That's not what I am saying ... for the first sale, everyone agrees that the superficial loss rules (SLR) mean the capital loss can't be claimed. The SLR tells you to add the CL to the ACB for the second buy ... which is re-capturing the CL for future use as you are increasing the ACB.

The net effect is that as long as the SLR are not triggered for the second sell, the two CLs from each buy/sell will be claimed as one total transaction when the second sale was made. 

In your case, this is in the same year. From other posts, it seems more common that SLR are triggered this year and the second sell that re-captures the CL is say five years later.


*Example where the superficial loss rule is not triggered.*

Buy stock Feb 29th, 2016 in a taxable account, then sell on June 30th, 2016 at a capital loss of say $5K. Rebuy on Sept 1st with an ACB of $7K then sell Dec 15th for a $1K loss.

For this case, there are two separate CG/CL calculations of a CL of $5K and $1k. As they are in the same tax year, this will add up to a total CL of $6K.


*Example where the superficial loss rule is triggered.*

Buy stock Feb 29th, 2016 in a taxable account, then sell on June 30th, 2016 at a capital loss of say $5K. Rebuy on July 25th with an ACB of $7K then sell Dec 15th for a $1K loss.

For the first sell, one can't claim the $5K CL as the superficial loss rules prevents this.

The SLR says that the $5K CL is added to the re-purchase ACB. So where the ACB without the SLR in play was $7K, with it the ACB is $7K + $5K = $12K. 

The ACB has been increased by the amount of the CL so when the CG/CL calculation is done, the first CL has been embedded into the calculation.


Bottom line here is that the SLR means the total CL will be the same, the timing of claiming it is what has changed.


For a more detailed discussion as well as examples, here is a link.
http://www.adjustedcostbase.ca/blog/what-is-the-superficial-loss-rule/


Cheers


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## Eclectic12 (Oct 20, 2010)

jdc said:


> ... The ability to claim the loss isn't actually lost, it is simply deferred.


+1 

The way I can see that one would lose the CL is where the stock that triggers the SLR is held in a registered account *and* one does not re-buy the stock in the taxable account quickly enough.

AFAICT, re-buying the stock say 60 days later means the regular ACB calculation is done. Without the part about re-adding the CL to the ACB, the CL is lost.


Or have I missed a caveat somewhere?


Cheers


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## Eclectic12 (Oct 20, 2010)

jdc said:


> I should have noted that the ability to claim the loss in an unregistered account would be permanently lost if you held the same stocks in a registered account after 30 days.
> 
> This is because the ACB of the registered shares would be adjusted upwards, but without impact because capital gains / losses are not calculated for registered funds.


I agree but I am not sure the "CG/CL for registered funds" is a blanket rule.

The article from the link says:


> ... a combination of a sale and repurchase occurs in the same account, the denied capital loss is directly added back to the ACB. In situations where the repurchase occurs in a different account, the denied capital loss should be added to the ACB of the shares in the account where the repurchase occurs.


If the taxable account re-buys the same stock within the time limit to trigger the SLR, the CL will be recaptured via the ACB. The requirement to make use of it is to sell the stock in the registered account(s) for long enough to avoid the SLR.


The way I interpret the rules as well as the article, two ways to permanently lose the SLR CL are to re-buy the same stock in a taxable account or to discover that the same stock is held in a registered account after the 61 day limit has passed.


Cheers


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## mrPPincer (Nov 21, 2011)

jdc said:


> I should have noted that the ability to claim the loss in an unregistered account would be permanently lost if you held the same stocks in a registered account after 30 days. This is because the ACB of the registered shares would be adjusted upwards, but without impact because capital gains / losses are not calculated for registered funds.


This was news to me, so thanks for mentioning that.

So here's a scenerio.

I have moved a stock into TFSA from non-r, thus triggering a superficial loss (which I apparently can't ever use) unless I sell it in the TFSA within a couple days.

Say I sell it, then I can use the capital loss.

But what I'm wondering now, is when can I repurchase it in the TFSA safely and still have use of the capital loss in my non-r?


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## mrPPincer (Nov 21, 2011)

^ok, just remembered T+3 is added, so the question is academic now.

I moved it on June 30, so today was the last day to make the sale. I eat the CL of a couple thousand plus. :stupid:

Still interested in thoughts on how that would have worked, could I have rebought in the TFSA a couple days later, or would I have had to wait 30 days to avoid complications.


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## mrPPincer (Nov 21, 2011)

Or am I wrong about T+3 being added to the sale date for the purposes of SCL I wonder?


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## mrPPincer (Nov 21, 2011)

mrPPincer said:


> Or am I wrong about T+3 being added to the sale date for the purposes of SCL I wonder?


OK, going by Eclectic's link below, looks like CRA uses settlement date*, so that answers that question.
http://www.adjustedcostbase.ca/blog/what-is-the-superficial-loss-rule/

(Couldn't find anything on CRA's site, & tried to wade through the GoC's tax document w/o luck so I'll go with the above).

Can't see why I couldn't have rebought a few days afterwards either, as this would have triggered a seperate SCL, but being in the TFSA, it wouldn't have counted.

Looks like I was too late by mere hours figuring this out, coulda safely sold today, and rebought with a monday or later settlement date, oh well, live and learn 
___

*edit, found further confirmation here
http://www.thor.ca/blog/2013/04/cra-confirms-date-of-disposition-for-shares-sold-on-an-exchange/


> April 22, 2013
> CRA confirms date of disposition for shares sold on an exchange
> Published by Ian Gamble
> 
> In 2012-0468931C6, the CRA confirmed that the date of disposition for shares sold on a stock exchange is the “settlement date”. When shares are sold on a stock exchange, typically the settlement date is two or three days after the trade date. The CRA’s long-standing position in IT-133 has been that this settlement date is the date of disposition for income tax purposes. The CRA’s legal rationale for this position is that “disposition” is defined in s. 248(1) to include “a transaction or event entitling a taxpayer to proceeds of disposition” (s. 248(1)). In the CRA’s view, a taxpayer becomes entitled to sale proceeds on the settlement date. In 2012-0468931C6, the CRA confirmed that the foregoing remains its view notwithstanding the cancellation of IT-133.


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## jdc (Feb 1, 2016)

Eclectic12 said:


> ... for the first sale, everyone agrees that the superficial loss rules (SLR) mean the capital loss can't be claimed. The SLR tells you to add the CL to the ACB for the second buy ... which is re-capturing the CL for future use as you are increasing the ACB.


I don't agree that the SLR would apply to the first sale, even though the same stock was bought and sold within 30 days of the first sale. As long as the stock was not owned 30 days after the first sale, the SLR is not triggered on that sale. Part 2 of the SLR rule would not be satisfied.

Personally, I would report both capital losses separately. It really doesn't make any difference in this case anyway.


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## jdc (Feb 1, 2016)

mrPPincer said:


> ^ok, just remembered T+3 is added, so the question is academic now.
> 
> I moved it on June 30, so today was the last day to make the sale. I eat the CL of a couple thousand plus. :stupid:
> 
> Still interested in thoughts on how that would have worked, could I have rebought in the TFSA a couple days later, or would I have had to wait 30 days to avoid complications.


Note that T+3 applies to the purchase date too. Calculate based on both settlement dates.

EDIT: A transfer to your registered account probably settles the same day as it really isn't a securties transaction on an exchange. It may be T+0

EDIT 2: Reread your post. Based on a June 30 transfer, it appears that you're too late.....


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## mrPPincer (Nov 21, 2011)

jdc said:


> Note that T+3 applies to the purchase date too. Calculate based on both settlement dates.


Yeah, that works to make it 30 days in most cases, but mine was a transfer from non-r to tfsa, so the transfer date is the date of disposition, so effectively, I had 30 days minus 3 business days to sell, sucks, but, it is what it is, no problem, I have a low earned income being semi-retired, so I'll make it work somehow


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## Market Lost (Jul 27, 2016)

slacker said:


> Hi,
> 
> I bought a stock on Feb 29th, 2016 in my margin account. I sold it on March 7th, 2016 at a loss.
> 
> ...


I haven't read the whole thread, but my question is why would you claim this as a capital loss? Unless you filed a T123, and made the election to have all securities treated as capital gains under S39(4) then this could be considered a loss under business income.


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