# Superficial loss & adjusted cost base



## RodDog999 (Jan 30, 2012)

Hi,

So I'll be doing my taxes myself for for the first time, and (unfortunately!) 2011 has also been the year where I have really started trading actively. Now, I spent the past few hours reading up on the superficial loss rule and how to apply the loss to the ACB as stated on the CRA website:


> However, if you are the person who acquires the substituted property, *you can usually add the amount of the superficial loss to the adjusted cost base of the substituted property*. This will either decrease your capital gain or increase your capital loss when you sell the substituted property.


So, I have put in all the numbers for a theoretical sequence of trades (I didn't simplify it too much because simplified examples usually don't apply to complex situations) into a spreadsheet. Once without the ACB adjustment, and once with it to see what the implications are. Here is a screenshot of the spreadsheet:










Now my question is: did I make a mistake and/or did I misunderstand something? :razz: :lol: 
The vast majority of threads discussing the SL rule didn't even mention the ACB adjustment when a superficial loss occurs, so I'm curious as to whether I got it right or not. It wouldn't make any sense otherwise, what if I made a few trades (same security), lost $10,000, then another one a couple of days later where I made $1000. Without the adjustment, I'd be taxed on the $1000 although my overall return would be -$9000.

And what if I ended up with a loss due to a superficial loss and didn't buy that same security again? I obviously can't add the loss to the ACB because I didn't buy that security again. In the example above, I ended up with a positive return after repurchasing it so all is well and the capital gains were reduced by increasing the ACB. Would I just report it as a regular capital loss? e.g. Sell XYZ for a $1000 loss, buy it two weeks later and sell it the next day for a $100 gain. In this scenario, I would be taxed for the $100 gain, although my return was -$900 and I can't offset any future capital gains because I didn't buy the security again.

Also, I read that I will have to report gains/losses on Schedule 3, but there is only one line and I need to list the company name - but I traded easily over 20 different stocks and had well over 100 sell orders. I will be filing via netfile with UFile or some other program, will I have an option to add additional lines for every security? Do I only need one line per security where I simply add/subtract all the losses/gains for 2011 or individual lines for every individual sell order even though it's the same security? Lastly, it doesn't give an option for it on Schedule 3, but will I have to report the ACB somewhere? It seems like adding the superficial loss to the ACB gets me the exact same result as if I treated it as a simple capital loss - except that I can't apply it against past capital gains, only against future capital gains in order to avoid people selling at the end of the year to lower their taxes and then buying it back in the new year.. Not sure how CRA would know this if it's not mentioned anywhere on the return.

So much trouble lol I know exactly how much cash I invested in 2011, I know how much cash I had left on Dec 31st and what the book value was of the securities I held at the time - I could simply add/subtract to find out how much money I lost/earned over the past year. Besides, it's only a few thousand $, and all this trouble just doesn't seem worth it. No idea how daytraders who make dozens of trades a day file their taxes. They probably need a personal full time accountant to keep track of it all.

Thanks in advance for anyone going over the example above! I know it's quite tedious, after all, I created it :razz:


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## Square Root (Jan 30, 2010)

Pretty detailed post for the first one. Sounds like maybe you should have kept the tax accountant?


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## MoneyGal (Apr 24, 2009)

RodDog999 said:


> * Besides, it's only a few thousand $, and all this trouble just doesn't seem worth it.* No idea how daytraders who make dozens of trades a day file their taxes. They probably need a personal full time accountant to keep track of it all.


Yep to the bolded. Tedious filing requirements are part of the overhead of day trading. You are also much more likely to be audited.


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## Eclectic12 (Oct 20, 2010)

RodDog999 said:


> Hi,
> 
> So I'll be doing my taxes myself for for the first time, and (unfortunately!) 2011 has also been the year where I have really started trading actively. Now, I spent the past few hours reading up on the superficial loss rule and how to apply the loss to the ACB as stated on the CRA website
> 
> ...


I'd suggest you call CRA to check. From my reading of the rule, I believe you've got it right. However, most people I know are trying to avoid the superficial loss. I suspect that few will know the answer. 


As for Schedule 3, I seem to recall the paper copy saying


> Attach a separate sheet of paper if you need more space.


I know the tax programs I've used all allowed me to insert as many rows as I needed.


As for a summary line or all details, I'd go with all the details - though if in doubt, ask CRA. The few times I've had issues and a followup discussion with CRA, more details and possibly a note made the discussion smoother.


Finally - Schedule 3 in the section marked "Publicly Traded Shares ... " has a column marked "ACB", so there is an spot for it and it is reported. Note that the investor is to track the ACB across all of the buys/sells for each security, re-calculating where something affects that ACB. 

An example that would affect the ACB is if the security pays Return of Capital (Roc) as part of cash payments. 
http://www.milliondollarjourney.com/how-return-of-capital-works.htm
http://howtoinvestonline.blogspot.com/2010/07/return-of-capital-separating-good-from.html

Another thing to be clear about for the schedule 3 ACB is that it is the ACB for the total number of shares sold on that line. Most web sites and posts refer mean ACB *per share* instead. The ACB per share makes it easier to figure out the ACB for say 100 shares sold that were part of say 300 shares bought in lots of 100 at three different prices.



Cheers


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## Potato (Apr 3, 2009)

RodDog999 said:


> Now my question is: did I make a mistake and/or did I misunderstand something? :razz: :lol:


To put it simply, in your example you're just misunderstanding. In both ways of calculating it you have a net gain of $490.06. Remember that you're taxed on net capital gains: your capital losses are subtracted from your gains, and any net capital losses can be carried forward indefinitely or back 3 years.

The _correct _way is the second method (adding the loss to the ACB to reduce future gains/increase future losses), which becomes important when you hold into the following year.

The trick with superficial losses is when the losses occur. In your example all the trades are done in one taxation year, and you sold out completely before the end of the year. So it doesn't matter how you get to it, the net capital gain is going to be the same.

Now where the superficial loss rule comes into play is if you still held onto that security within 30 days going into the next tax year.

So say you bought on Dec 1, sold on Dec 2 for a profit -- there's no superficial profit rule, so you claim that on your taxes for that year. Then you buy on Dec 3 again, and sell on Dec 4 at a loss. If you then went 30 days without buying back, the loss wouldn't be superficial, and you'd be taxed on the net capital gain. But if you did buy back on Dec 5 and held into the new year, then you couldn't claim the Dec 4 loss that year: it would adjust your ACB for when you eventually sold in the next tax year, like you have in your 2nd spreadsheet. If it was ultimately a loss and you stayed out for 30 days, you'd claim the loss against other gains (either in other stocks, or in other years). 

So if we modify the example where you don't sell out on Dec 6, but instead sell in the new year on Jan 6, what you have is the first gain is taxable in 2011, the loss from Dec 4 gets carried forward to reduce the gain in 2012. So you'd have a taxable gain of $230.02 for your 2011 taxes, and one of $260.04 for your 2012 taxes.

If all the transactions are in one year, then it all comes out in the wash.



> And what if I ended up with a loss due to a superficial loss and didn't buy that same security again?


In that case, it's *not a superficial loss*. If you buy something sell it at a loss, and buy it again (within 30 days), that's a superficial loss. If you sell then buy back right away you still own it. If you try to be sneaky and buy twice as much as you want to hold, then turn around and sell half so you end up with the amount you want to own forever, you're still not really taking the loss on what you owned all along by disposing of it. Remember the point of a superficial loss is so that you can't claim losses without actually having taken the loss and disposing of the stock. So if you go 30 days without owning it, you have then realized the loss and it's not superficial anymore.


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## 50invester (Feb 10, 2010)

*Superficial Loss*



Potato said:


> So say you bought on Dec 1, sold on Dec 2 for a profit -- there's no superficial profit rule, so you claim that on your taxes for that year. Then you buy on Dec 3 again, and sell on Dec 4 at a loss. If you then went 30 days without buying back, the loss wouldn't be superficial, and you'd be taxed on the net capital gain. But if you did buy back on Dec 5 and held into the new year, then you couldn't claim the Dec 4 loss that year: it would adjust your ACB for when you eventually sold in the next tax year, like you have in your 2nd spreadsheet. If it was ultimately a loss and you stayed out for 30 days, you'd claim the loss against other gains (either in other stocks, or in other years).


Pardon my confusion, but my understanding of the rule was that not only did you have to wait for 30 days after the sale to buy back, you had to actually own it for a period of 30 days prior to selling??


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## 50invester (Feb 10, 2010)

*Superficial Loss*

On this topic, and by the way, I have read alot on the web on this and I am not getting any real good answers on this. So, an additional question is, if I own the same stock in a REGISTERED account and Non-registered account at the same time, do I have to follow the rules as if it was one account or a superficial loss will apply? Also, if I follow the rules in my non-registered account a sell to get a capitiol loss, can I continue to hold the same stock in my REGISTERED? I understand the whole thing about the 60 day window and the fact that if its a superficial loss, you just add it to the ACB of that stock. My understanding is that your just deferring the loss (superficial) to use against the gain in the same stock in the future. Where as a 'Capitol Loss' you can use right away to reduce the gain seen in other stocks that you may hold. Correct? 

Its the REGISTERED account issue that is confusing? Any comments?

p.s. I do have an accountant, but I want to fully understand this so I can better manage things in the future and do my own return.


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## inquirer (Mar 9, 2012)

*Superficial loss question*

Hello, I have a question related to superficial loss. I have the following example:

1 Feb bought XYZ for 30 000
3 Feb sold XYZ for 20 0000 *therefore a 10 000 loss*
5 Feb bought back XYZ 20 000. Being a superficial loss the ACB = 20 000 + 10 000 = 30 000

10 Feb sold again XYZ 17 000. *therefore a loss of 13 000 as per the ACB*

If no transactions will be done going further on this stock can the 13 000 be declared as capital loss for income tax purposes?


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## caricole (Mar 12, 2012)

*@RodDog999

Second part of your table is 100% correct (line 12 till line 20)

That's the way it should be done and no other way

It is also the reason why I never saw a proper software to handle the recording of «CAPITAL TRANSACTIONS» ( anybody did ?)

You sell a stock with capital gain...you record the gain immediatly

You sell a stock with CAPITAL LOSS....you have to wait for 30 days to record the loss, if you buy et back within 30 days, your LOSS is ADDED TO THE NEW COST BASE*


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