# "Beating" Superficial Loss Rules?



## savvybuck (Feb 12, 2014)

Hey guys, I am reading the thread superficial loss rules with great interest, and I am making a new thread because this thread deals about how the general rules of it rather than a specific example.

So, onwards, are the examples below legal and allowed?


1. You sell X worth of shares in a non registered portfolio for a loss and rebuy immediately in a tax sheltered account (it happened to have cash sitting there)

*I assume #1 is not allowed.


2. You sell X worth of SPY for a capital loss and immediately rebuy a similar ETF such as ONEK


3. You and your dad are very close. You own $100,000 worth of stocks in ABC and he owns $100,000 worth of stocks in XYZ. It is 2009 and both shares crash to around $50,000.
You immediately sell your shares and buy XYZ. He immediately sells his shares and buys ABC. You both claim capital losses.
30 days later, you both switch back again.


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## mrPPincer (Nov 21, 2011)

1. allowed, but qualifies as superficial capital loss

2. not superficial capital loss

3. I don't think your dad qualifies as an 'affiliated person', unless he falls into category 3 of the 4 below



> Affiliated persons
> 
> Some examples of affiliated persons are:
> 
> ...


http://www.cra-arc.gc.ca/tx/ndvdls/...lns101-170/127/lss-ddct/sprfcl/ffltd-eng.html

That said, CRA can be tricky and they did say *some* examples, so..


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## Eclectic12 (Oct 20, 2010)

savvybuck said:


> Hey guys, I am reading the thread superficial loss rules with great interest, and I am making a new thread because this thread deals about how the general rules of it rather than a specific example.
> 
> So, onwards, are the examples below legal and allowed?
> 
> ...


Why bother with doing anything in a registered account, which will lose the ability to claim the loss?

If one rebuys the same stock, one can't claim the capital loss in the year it happens (i.e. when it is sold) but it is rolled into the ACB for the repurchased shares so at the second sale, it will be automatically claimed. All the superficial loss has done has changed the date it is claimed.


Cheers

*PS*

It sounds like you want to be clear on the rules as opposed to "beating" them.


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## Guban (Jul 5, 2011)

Options 2 and 3 avoids the superficial loss rules.

Option 1 eliminates the capital loss claim, and should be avoided. Buying the shares back prevents claiming the capital loss, and when it is sold in the sheltered/registered account, there are no gains nor losses, so the superficial loss is unusable.


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## nobleea (Oct 11, 2013)

Somewhat related question.
Is the stock in a company and the options for the underlying stock considered the same item?

If you have a stock that is down considerably and you sell, but then buy a small amount of call options as insurance should the stock rise in the near term until you can buy in again (30days), is that a superficial loss, or is it fully allowed?


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## peterk (May 16, 2010)

nobleea said:


> Somewhat related question.
> Is the stock in a company and the options for the underlying stock considered the same item?
> 
> If you have a stock that is down considerably and you sell, *but then buy a small amount of call options as insurance should the stock rise in the near term until you can buy in again (30days)*, is that a superficial loss, or is it fully allowed?


Wow. That is inspired. Did you read that somewhere or come up with it yourself?

I wonder if it's legit...


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## nobleea (Oct 11, 2013)

peterk said:


> Wow. That is inspired. Did you read that somewhere or come up with it yourself?
> 
> I wonder if it's legit...


I don't know if you're being facetious or not.
I could not find anything on the web that discussed it.


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## peterk (May 16, 2010)

I am not! I think it's a really neat idea if it's allowed!

Of course 30 day options at the money are costly, around 2.5-3% for blue chips it seems.


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## mrPPincer (Nov 21, 2011)

CRA site says owns or has the right to own within the 30 day period after sale, so no.


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## Eclectic12 (Oct 20, 2010)

nobleea said:


> ... If you have a stock that is down considerably and you sell, but then buy a small amount of call options as insurance should the stock rise in the near term until you can buy in again (30days), is that a superficial loss, or is it fully allowed?


As pointed out ... the "right to own" part makes this a superficial loss.

If both transactions are in a taxable account, the loss is postponed rather than lost. So maybe I'm missing something .... but why not just re-buy and ignore the delay?


This seems like a lot of brainstorming effort to prevent something that may not be a huge deal.


Cheers


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## savvybuck (Feb 12, 2014)

Eclectic12 said:


> As pointed out ... the "right to own" part makes this a superficial loss.
> 
> If both transactions are in a taxable account, the loss is postponed rather than lost. So maybe I'm missing something .... but why not just re-buy and ignore the delay?
> 
> ...



Because some stocks hit the bottom for only several days before rebounding. 

If you "sold" at the very bottom to claim tax loss, that 30 day delay could result in significant potential loss of gains because the stock rebounded.


You want to claim the tax loss because you can immediately use that money CRA gave back to you and re-invest in the company that is down and let it compound.


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## Eclectic12 (Oct 20, 2010)

^^^^

I see two problems with this ...


The first problem is how exactly am I going to get money back from CRA to re-invest when I sell in Sept for a CL the stock that has to be rebought in "only several days"?
AFAICT, one can't file early as it's something like Feb of the next year that one could file the current tax year's return.


The second problem is how does one get *any* money back from CRA where there is no CG? A CG is a requirement to have a shot at a refund, n'est pas?
As I understand it, one is using CL to reduce the CG taxes to be paid when the tax return is filed (maybe six months down the road) or one is filing an adjustment to get a refund for a previous year's CG, up to three years back.



Either way ... I don't see anywhere near the quick turnaround to get cash to re-invest. With the timing of this situation, IMO a re-buy at the bottom is the way to go instead of sweating the superficial loss rule.



Cheers


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## nobleea (Oct 11, 2013)

Eclectic12 said:


> ^^^^
> I see two problems with this ...
> The first problem is how exactly am I going to get money back from CRA to re-invest when I sell in Sept for a CL the stock that has to be rebought in "only several days"?
> AFAICT, one can't file early as it's something like Feb of the next year that one could file the current tax year's return.
> ...


Capital losses can be carried forward indefinitely. Say to one's retirement when one would start selling non-registered equities.

Obviously it doesn't work since options are considered the same as the underlying stock for this purpose, but here's how it would go.

You have a stock, say an oil stock, that is doing not well. Your cost base is $20, but it's trading at $3. It's so bad now that it may be taken over. But who knows when. You sell the stock to lock in the capital loss, then buy an in the money call option contract for the same amount of shares you sold. You pay the premium. Stock starts to rise on rumours of a buyout. Stock gets bought out at a 50% premium since it's so beaten down and they want an easy sale. You excercise your options in 30 days or more and pick up your gains, minus the 'insurance' cost of the call options. It was $3 when you sold but you got it back at $5/sh net (though only costing you $3/sh) That differential was a free capital (non existent) loss that you can use at a later date.

Now, the point is moot as per CRA. But that's the benefit.


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## Eclectic12 (Oct 20, 2010)

nobleea said:


> Capital losses can be carried forward indefinitely. Say to one's retirement when one would start selling non-registered equities.


The claim in post #11 was that the CL was needed immediately to get a refund from CRA that could be re-invested in a stock that was "down a few days" to max out the compounding.

As I say ... I don't see CRA turning around the claimed CL quick enough to help, assuming there is a CG in the previous three years to use it against immediately.


Then too ... where the stock has rebounded in a few days, locking in the superficial loss to the ACB to be harvested in the future when the stock is sold is surely better than losing out on a significant gain so that there is a CL to carry forward, n'est pas?




nobleea said:


> ... Obviously it doesn't work since options are considered the same as the underlying stock for this purpose, but here's how it would go ...


I have no problem understanding the potential ... but as CRA doesn't allow it the viable choices seem to be:
a) wait the 30+ days and hope the stock does not rebound too much.
b) buy an alternate (ex. sell TD and buy BNS).
c) re-buy immediately, which rolls the superficial loss into the ACB for the re-bought shares.


I suppose if one has time to keep tabs on the rebound, it might work out ... but based on how quickly the stock is supposedly rebounding, it may be better to go with c).


Of course the other question is how much the drop was ... most of the significant drops I've seen lately have lasted far longer than 30 days.


Cheers


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