# Does CRA get suspicious of constant cap losses?



## james4beach (Nov 15, 2012)

I'm curious whether CRA gets suspicious when someone reports constant capital losses year after year.

In my case this is because I heavily invest in bonds (which nearly always result in a cap loss at maturity) and use gambit trades (each has a cap loss to the tune of trade fees).


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## Eclectic12 (Oct 20, 2010)

They do for rentals or businesses that don't make income for too long so it would stand to reason it's possible. 
It may be driven by how many are reporting it.

Perhaps someone with a connection to CRA or who has been reporting a similar string of CLs from bonds can comment with more authority.


As a side note, I find it confusing that you have a state preference for other assets that do better than equities yet one asset you are choosing will have a capital loss ... or does the interest paid always exceed the loss?


Cheers


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## Woz (Sep 5, 2013)

If they're publicly traded, I doubt they'd get suspicious. 

They do care about artificial capital losses in general, but with it being publicly traded it's pretty obvious that it's a real loss. They'd probably get suspicious if there are non-arm's length transactions or if there are an unusually large number of transactions (>100), but otherwise I don't see why they'd care.


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## AltaRed (Jun 8, 2009)

Eclectic12 said:


> As a side note, I find it confusing that you have a state preference for other assets that do better than equities yet one asset you are choosing will have a capital loss ... or does the interest paid always exceed the loss?


In a taxable account these last several years, it has been virtually impossible to buy a bond at a discount, i.e. below $100, and especially after one adds in the ask spread (built in commission). If you buy a bond today at $106 and it matures in 10 years at $100, there is a capital loss. The coupon yield is supposed to make up for it but in a taxable account, it is highly questionable on an after tax basis due to the different tax treatment (full tax rate on interest, 50% tax rate on capital losses). One reason why bonds should always be in a registered account.


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## CPA Candidate (Dec 15, 2013)

The security information is easily verifiable.


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## james4beach (Nov 15, 2012)

Eclectic12 said:


> As a side note, I find it confusing that you have a state preference for other assets that do better than equities yet one asset you are choosing will have a capital loss ... or does the interest paid always exceed the loss?


This is just how non-registered bonds work. The ACB is the purchase price, proceeds of sale are the maturity value which is constant. Coupons are taxable interest income. I don't craft them to always turn into capital losses, that's just how they turn out at current bond prices.

They're not very tax efficient in non-registered. I choose bonds with very small coupons.


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## AltaRed (Jun 8, 2009)

james4beach said:


> They're not very tax efficient in non-registered. I choose bonds with very small coupons.


So why do that, unless because you don't have access to HISA type accounts at Cdn online banks while in the USA?


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## james4beach (Nov 15, 2012)

I had to shut down my TFSA because I got bullied by the US government into giving it up. Most of these bonds got booted out of my TFSA. I could transfer them back into my RRSP as I gain enough space in there.

The bonds are not horrible. I purchased many of them at yields that are quite good. The cap losses also let me eliminate any cap gains, which is nice when it happens. Plus, I like the safety of Government of Canada bonds. The yields are locked in to maturity, like a long term GIC.

I use the HISAs very heavily.


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## james4beach (Nov 15, 2012)

By the way I might have mentioned this before in other threads about my residency, but given the nature of jobs in my field, an employment duration of 5 ish years can be expected. It's also the reason I continue being a Canadian tax resident.

Due to this I'm in no hurry to do anything about my (slightly tax inefficient) bonds. Before I know it, I might be back in Canada and can fire up that beautiful TFSA again and immediately transfer $35,000 worth of GICs & bonds into it. How sweet that would be!

Just praying that I don't lose TFSA eligibility and lifetime accumulation by the time I return to Canada. Do I have to maintain Canadian tax residency to be able to resume the use of my TFSA in the future, without losing contribution space?


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## Eclectic12 (Oct 20, 2010)

??? ... CRA says


> ... any withdrawals made during the period that you were a non-resident will be added back to your TFSA contribution room in the following year, but will only be available if you re-establish your Canadian residency status for tax purposes.


http://www.cra-arc.gc.ca/tx/ndvdls/tpcs/tfsa-celi/lgbl-eng.html

So from my reading ... while a Canadian resident, business as usual - annual amounts (even when not used due to US taxes) keep accumulating. 

When one becomes a NR, still no change to the unused TFSA contribution room but the annual allotment stops rolling in.

Say ten years goes by then one becomes a Canadian resident again.

The unused TFSA contribution plus the annual allotment for the year the residency changed is available to use immediately (i.e. only the annual allotment for full years where one is NR is lost).


Cheers


*PS*

Or to put it another way ... if the goal is to have the maximum TFSA contribution room available - one has to keep the Canadian residency in place.


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