# Norbert's Gambit, a Perpetual Source of Superficial Loss?



## kreyszig (Jan 16, 2013)

So, assuming that Norbert's Gambit is performed within 30 calendar days, any capital loss due to either transaction fees, management fees or exchange rate fluctuations will lead to superficial losses for tax purposes, right? I can't see how the corresponding CAD and USD securities can be considered anything else than identical properties?

Thanks!


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## kreyszig (Jan 16, 2013)

Anyone can tell me if it is the case or not? Thanks!


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## GoldStone (Mar 6, 2011)

Here's the definition of the superficial loss from the CRA web site:



CRA said:


> 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.


You buy a stock on one exchange. The stock moves against you. You sell it on another exchange. There is nothing superficial about this loss in and by itself. The transaction doesn't meet the above definition. 

The gambit loss is superficial if you, or a person affiliated with you, buys and keeps the same stock within 30 days of the gambit.

A more interesting question to ponder: 

Which exchange rate should you use to calculate the loss? You have several choices:

Acceptable Exchange Rate Sources

If you use the actual exchange rate realized through the gambit, you don't have a loss! If you use a different exchange rate, it's important to be consistent about it:



CRA said:


> When a source other than the source used for an actual transaction is selected, that source must be used consistently and for a reasonable period of time (such as one year).


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## kreyszig (Jan 16, 2013)

GoldStone said:


> Here's the definition of the superficial loss from the CRA web site:
> 
> 
> 
> ...


Thanks GoldStone, I had missed that critical "and". So what happens if I have 500 shares of a stock, sell them all, buy 300 shares within 30 calendar days and still own them 30 days after the sale? Is that a superficial loss for 300 of the shares I sold? Do you agree that the corresponding security on a different exchange is considered as an "identical security"?

About the acceptable exchange rate source, how do you conciliate the gambit rates with the fact that additional exchange rate values are needed to calculate capital gain/losses for shares that are bought and sold using the foreign currency obtained through gambiting? Do you have to use the Bank of Canada rates when these shares are bought and sold to calculate the associated capital gain/loss, as well as for foreign currency capital gain/loss when you dispose of some of this currency to buy these shares, but then you have the choice to use the effective rates from the gambits to calculate the foreign currency initial ACB and final capital gain/loss? Ultimately this would not make a difference on the overall capital gain/loss (other than through the option to use the $200 exemption on foreign currency gain/loss) since the calculated foreign currency gain/loss associated to the disposal of foreign currency when purchasing the gambit shares will adjust according to the technique used to calculate the capital gain/loss associated to the gambit, and both events occur pretty much at the same time, right?

Or do I have the possibility to use the effective exchange rate from the combination of all past gambits in the calculation of the ACB and capital gain/loss following the disposal of foreign securities that were originally purchased using foreign currency obtained through gambitting? This would allow me to somewhat deffer the foreign currency capital gain/loss until I perform the reverse gambit to convert the foreign currency back to CAD? It is a bit weird though since the capital gains/losses that I have to calculate for the disposal of foreign securities are "paper" gains/losses in the sense that no actual conversion to CAD is performed, and using the effective rate from the combination of all past gambits is more or less arbitrary, since it is not necessarily a good estimate for neither the exchange rates in effect when these foreign securities are purchased and sold nor the exchange rate of the final reverse gambit (which is obviously unknown until this event occurs in the future).


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## GoldStone (Mar 6, 2011)

kreyszig said:


> So what happens if I have 500 shares of a stock, sell them all, buy 300 shares within 30 calendar days and still own them 30 days after the sale? Is that a superficial loss for 300 of the shares I sold?


Yes. Not sure about the other 200.



kreyszig said:


> Do you agree that the corresponding security on a different exchange is considered as an "identical security"?


It's literally the same security. The whole gambit idea is based on that.



kreyszig said:


> About the acceptable exchange rate source...


Sorry, it's too late in the night to discuss this. Tomorrow, maybe.


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## kreyszig (Jan 16, 2013)

GoldStone said:


> Yes. Not sure about the other 200.


I have found the formula that CRA uses to assess partial superficial losses:
https://www.cibcwg.com/c/document_l...-9ec7-219300d7fb76&groupId=220416&version=1.0
http://www.bmonesbittburns.com/IA/I...ID=ETHMAU&LANGUAGE=EN&NEWS_ID=15&VERSION=null

The CRA technical interpretation that also provides this formula (2005-0150811E5) does not seem to be available online.

The next question is, do I have to consider DRIP shares when evaluating the fraction of capital losses that are considered as superficial? What about an effective reduction of shares resulting from the occasional forced disposal of fractional shares following a reverse split?


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## kreyszig (Jan 16, 2013)

So I contacted CRA again and they told me that DRIP shares should be considered, but not fractional shares due to consolidation (reverse split), because in the former case it is assumed to be an event in my control, but not in the latter...


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