# superficial loss/wash trade question



## moneyhungry87 (Nov 11, 2016)

ok so I do alot of trading and I was wondering...say I buy xyz and I make $1000 profit, then I rebuy xyz the next day and sell at a loss and lose the $1000 I made the day before, 2 days later I rebuy xyz again and sell for $1000 profit...would I still owe capital gains on $2000 even though I lost half of it because of the "superficial" loss rule?

i'll also trade around a position where say I own 1000 shares of xyz, im constantly buying and selling x amount of shares at gains and losses, the average price of the shares I hold constantly fluxuate and my broker indiscriminately sells random shares from my total position. how does one figure out how much I owe etc come tax time? it can get confusing....hope im making sense kinda tired! btw I do have an accountant do my taxes but im asking just as im curious.


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## moneyhungry87 (Nov 11, 2016)

or lets say I bought 500 shares of xyz and sold it for a loss, if I then only rebuy only 250 shares for my next trade within the 30 day period would the superficial loss rules change as I bought less shares vs the previous trade? like say would they only count 250 shares under the superficial loss rule as my losing position was 500 shares and I only rebought 250? or does the only thing the CRA care about is the fact I bought the same financial security within 30 days after a capital loss? thanks!


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## humble_pie (Jun 7, 2009)

moneyhungry87 said:


> ok so I do alot of trading and I was wondering...say I buy xyz and I make $1000 profit, then I rebuy xyz the next day and sell at a loss and lose the $1000 I made the day before, 2 days later I rebuy xyz again and sell for $1000 profit...would I still owe capital gains on $2000 even though I lost half of it because of the "superficial" loss rule?
> 
> i'll also trade around a position where say I own 1000 shares of xyz, im constantly buying and selling x amount of shares at gains and losses, the average price of the shares I hold constantly fluxuate and my broker indiscriminately sells random shares from my total position. how does one figure out how much I owe etc come tax time? it can get confusing....hope im making sense kinda tired! btw I do have an accountant do my taxes but im asking just as im curious.





moneyhungry87 said:


> or lets say I bought 500 shares of xyz and sold it for a loss, if I then only rebuy only 250 shares for my next trade within the 30 day period would the superficial loss rules change as I bought less shares vs the previous trade? like say would they only count 250 shares under the superficial loss rule as my losing position was 500 shares and I only rebought 250? or does the only thing the CRA care about is the fact I bought the same financial security within 30 days after a capital loss? thanks!




i believe you should ask your accountant to explain to you the tax implications for professional traders. These are quite different from retail investors, who may or may not benefit from the capital gains exemption rate.


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## Jimmy (May 19, 2017)

moneyhungry87 said:


> or lets say I bought 500 shares of xyz and sold it for a loss, if I then only rebuy only 250 shares for my next trade within the 30 day period would the superficial loss rules change as I bought less shares vs the previous trade? like say would they only count 250 shares under the superficial loss rule as my losing position was 500 shares and I only rebought 250? or does the only thing the CRA care about is the fact I bought the same financial security within 30 days after a capital loss? thanks!


If you were just a regular investor you would not be able to claim a loss for 250 of the shares if you rebought 250 again in < 30 days under the superficial loss rules.


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## Eclectic12 (Oct 20, 2010)

moneyhungry87 said:


> ok so I do alot of trading and I was wondering...say I buy xyz and I make $1000 profit, then I rebuy xyz the next day and sell at a loss and lose the $1000 I made the day before, 2 days later I rebuy xyz again and sell for $1000 profit...would I still owe capital gains on $2000 even though I lost half of it because of the "superficial" loss rule?


AFAICT it depends on whether you own the xyz thirty days after the loss that could be a superficial loss.
http://www.cra-arc.gc.ca/tx/ndvdls/.../lns101-170/127/lss-ddct/sprfcl/menu-eng.html

If you don't own stock xyz from 29 days from the loss sale through 31 days, condition #2 would not be met. The two conditions are joined with an "and" so both have to be met for a superficial loss to happen.




moneyhungry87;1623169 ... i'll also trade around a position where say I own 1000 shares of xyz said:


> That's why it is better understand what is needed before trading in a taxable account. Having a system setup that collects the data as it happens IMO is a lot easier than figuring it out after the fact.
> 
> 
> If that company's shares are only held in the brokerage account (i.e. no same company shares in other taxable accounts), the broker is correctly tracking the cost base and that info is available for just before all the sales, you might be able to use the broker's numbers to figure it out. Things like currency conversion or mistakes by the broker can mean this won't work.
> ...


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## Eclectic12 (Oct 20, 2010)

moneyhungry87 said:


> or lets say I bought 500 shares of xyz and sold it for a loss, if I then only rebuy only 250 shares for my next trade within the 30 day period would the superficial loss rules change as I bought less shares vs the previous trade?


No ... either the conditions trigger the superficial loss rules or they don't. 

AFAICT, if the superficial loss rules are triggered - in a taxable account, the loss is most likely pushed to a future date by adding it to the cost base of the re-purchased shares. If the superficial loss is from transferring to a registered account, it is a total loss as the disallowed loss can't be recaptured at a future date.




moneyhungry87 said:


> ... or does the only thing the CRA care about is the fact I bought the same financial security within 30 days after a capital loss?


This ... if number of shares matters - it would spelled out as something to consider.


Cheers


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## Eclectic12 (Oct 20, 2010)

Jimmy said:


> If you were just a regular investor you would not be able to claim a loss for 250 of the shares if you rebought 250 again in < 30 days under the superficial loss rules.


Why?

The second criteria is to "still own" at the thirty day mark. If it isn't owned, the second criteria isn't being met.


Cheers


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## Jimmy (May 19, 2017)

Eclectic12 said:


> Why?
> 
> The second criteria is to "still own" at the thirty day mark. If it isn't owned, the second criteria isn't being met.
> 
> ...


It is. They are talking about still owning the new shares or_ 'substituted property'_ not the original shares.

Condition 1: If you sell sell shares of xyz and want to claim a capital loss you have to wait more than 30 days if you want to rebuy the exact same qty of new xyz shares again . Else it is a superficial loss and you can't claim a capital loss

2nd condition: to be a superficial loss just says you have kept the _substituted property ( new shares)_ for more than 30 days form the sale of the original shares

*Example:*

Sell 100 shares xyx Mar 30 2017 for loss

_Condition 1_ Buy 100 new shares xyz (substituted property) April 5, 2017 ( before 30 days are up) 
_Condition 2_ Still holding new shares after May 6, 2017 ( > than 30 days) 


= Superficial loss
= no cap loss allowed


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## Eclectic12 (Oct 20, 2010)

My bad ... despite scenario #2 as well as your response being clearly in view - my brain was seeing scenario #1.

It seems clear that in this case, the re-bought stock would be held at 30+ days .... which would meet both conditions.


< ... Time to have another coffee to avoid making another mistake :rolleyes2: 
... or maybe it was too much coffee? .... >


Cheers


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## Jimmy (May 19, 2017)

Eclectic12 said:


> My bad ... despite scenario #2 as well as your response being clearly in view - my brain was seeing scenario #1.
> 
> It seems clear that in this case, the re-bought stock would be held at 30+ days .... which would meet both conditions.
> 
> ...


No worries at all. I just remember studying this ages ago and knew scenario #1 more. I had to read that 2nd part a dozen times before I saw it too. :encouragement:


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## moneyhungry87 (Nov 11, 2016)

Eclectic12 said:


> AFAICT it depends on whether you own the xyz thirty days after the loss that could be a superficial loss.
> http://www.cra-arc.gc.ca/tx/ndvdls/.../lns101-170/127/lss-ddct/sprfcl/menu-eng.html
> 
> If you don't own stock xyz from 29 days from the loss sale through 31 days, condition #2 would not be met. The two conditions are joined with an "and" so both have to be met for a superficial loss to happen.
> ...



damn I had no idea. So if my profits are taxed as income, does that mean the superficial loss rule doesnt apply? I'm only taxed on net profit for the year? if I make 10k then lose it I have zero income regardless of the circumstances? I trade a small number of securities so ive made money, lost it, then repurchased that same security within the 30 day period frequently...


BTW...I do have longterm investments that I plan on selling in a few years. I am worried if im classified as a business i.e. day trader, the CRA will also tax me 100% on my longterm investments that imo should be taxed only at 50%. I don't want to get screwed that way. any thoughts?


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## Eclectic12 (Oct 20, 2010)

moneyhungry87 said:


> ... So if my profits are taxed as income, does that mean the superficial loss rule doesnt apply?


I haven't seen any articles indicating that superficial loss rules have any exceptions so without further digging or reference, my guess is that it applies to all investor types.




moneyhungry87 said:


> ... I'm only taxed on net profit for the year? if I make 10k then lose it I have zero income regardless of the circumstances?


That's the way I understand it ... but it looks like you are overlooking the silver lining to having to report the gains as income.

Say you have $20K income from other sources (i.e. not investing) then say the year's trading nets out to a gain of $10K then a loss of $15K. A regular investor reporting as CG, has a CL of $5K that can't be used until there is a CG of $5K to wipe out (i.e. the loss can't be used to help with the $20K of income). The income reporting trader however, can reduce the $20K income with the $5K loss.




moneyhungry87 said:


> ... I trade a small number of securities so ive made money, lost it, then repurchased that same security within the 30 day period frequently...


As I say, were stock A was repurchased in < 30, the key seems to be whether you still own it at the 30 day mark.

Where one is only doing this in a taxable account, one loses the ability to claim the loss at the time of the loss. The superficial loss gets added into the cost base for the re-purchased shares, pushing the loss to the future. To capture the loss, all one has to do is sell the security then wait 30+ days before re-buying. 




moneyhungry87 said:


> ... BTW ... I do have longterm investments that I plan on selling in a few years. I am worried if im classified as a business i.e. day trader, the CRA will also tax me 100% on my longterm investments that imo should be taxed only at 50%. I don't want to get screwed that way. any thoughts?


From article, it sounds like the way to avoid this is to separate the long term investments into a separate account but it does not spell out what CRA would be looking for.



> It is possible that *a taxpayer may have some securities transactions which are capital transactions, and in the same year have other securities transactions which are income transactions*. For example, a day trader could have *two investment accounts, one for day trading, and one for investments which are not frequently traded*, and are held as long term investments.



Cheers


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## moneyhungry87 (Nov 11, 2016)

hmm so as I understand, the superficial loss rule doesnt mean I get screwed and have to pay tax on money I made then lost via a superficial loss, all it means is that I_ can't carry forward the capital loss to future years_ correct? For example, I buy a stock and make $1000, sell, then rebuy the stock and sell at a $1000 loss, then rebuy the stock within 30 days and sell at breakeven...in this scenario I would not owe tax on the $1000 I initially made? the superficial loss would be pushed forward to the break even trade resulting in a capital loss (assuming I didnt repurchase the stock again within 30 days of selling the breakeven position)? it just keeps getting pushed forward via ACB until there is a 30 day pause in buying that security? All that it means is say the following tax year etc the capital loss aka the superficial loss cannot be applied to the future? am i correct? thanks alot!

so to keep it very simple the only negative effect of a superficial loss is that a superficial loss cannot be applied to the future like a regular capital loss, thats basically it?


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## like_to_retire (Oct 9, 2016)

moneyhungry87 said:


> hmm so as I understand, the superficial loss rule doesnt mean I get screwed and have to pay tax on money I made then lost via a superficial loss, all it means is that I_ can't carry forward the capital loss to future years_ correct? For example, I buy a stock and make $1000, sell, then rebuy the stock and sell at a $1000 loss, then rebuy the stock within 30 days and sell at breakeven...in this scenario I would not owe tax on the $1000 I initially made? the superficial loss would be pushed forward to the break even trade resulting in a capital loss (assuming I didnt repurchase the stock again within 30 days of selling the breakeven position)? it just keeps getting pushed forward via ACB until there is a 30 day pause in buying that security? All that it means is say the following tax year etc the capital loss aka the superficial loss cannot be applied to the future? am i correct? thanks alot!
> 
> so to keep it very simple the only negative effect of a superficial loss is that a superficial loss cannot be applied to the future like a regular capital loss, thats basically it?


Don't worry about the capital gains. The rule has nothing to do with them. 

It's about claiming a capital loss. You give up the right to do so if you buy the same or identical property during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale, and you still own the property 30 calendar days after the sale.

ltr


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## moneyhungry87 (Nov 11, 2016)

like_to_retire said:


> Don't worry about the capital gains. The rule has nothing to do with them.
> 
> It's about claiming a capital loss. You give up the right to do so if you buy the same or identical property during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale, and you still own the property 30 calendar days after the sale.
> 
> ltr


I'm splitting hairs here and have a thick head...so the bottom line here is in that situation I would not owe tax on the capital gains that I completely lost via a superficial loss? whats got me stuck is the terminology, if I can't claim the loss and it doesnt exist then does that mean I owe tax on the previous capital gains? I believe I do have it right though in that the only negative effect of a superficial loss is being unable to claim a capital loss against future profits like you would be able to to do with a regular capital loss...correct?


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## like_to_retire (Oct 9, 2016)

moneyhungry87 said:


> I'm splitting hairs here and have a thick head...so the bottom line here is in that situation I would not owe tax on the capital gains that I completely lost via a superficial loss? whats got me stuck is the terminology, if I can't claim the loss and it doesnt exist then does that mean I owe tax on the previous capital gains? I believe I do have it right though in that the only negative effect of a superficial loss is being unable to claim a capital loss against future profits like you would be able to to do with a regular capital loss...correct?


With respect to taxation, the negative effect of a superficial loss is that you may not book the loss. It's that simple.

You add up all your capital gains for the year that produces a net capital gain. Then you add up all your capital losses for the year, excluding those not allowed since they are deemed superficial. That produces a net capital loss. You subtract the net losses from the net gains and you will pay tax on the remainder. If the remainder is negative you may book the remainder for future years.

ltr


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## moneyhungry87 (Nov 11, 2016)

like_to_retire said:


> With respect to taxation, the negative effect of a superficial loss is that you may not book the loss. It's that simple.
> 
> You add up all your capital gains for the year that produces a net capital gain. Then you add up all your capital losses for the year, excluding those not allowed since they are deemed superficial. That produces a net capital loss. You subtract the net losses from the net gains and you will pay tax on the remainder. If the remainder is negative you may book the remainder for future years.
> 
> ltr


yes but the superficial loss is pushed forward when you rebuy the security via the ACB right? the answer you gave me is what I always believed but now im reading conflicting information hence the reason i'm confused here.


From CRA website:

If you have a superficial loss in 2016, you cannot deduct it when you calculate your income for the year.

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.


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## like_to_retire (Oct 9, 2016)

moneyhungry87 said:


> yes but the superficial loss is pushed forward when you rebuy the security via the ACB right?


OK, I think I get your confusion. Yes, there's no actual difference in the final sale of the property in the future with respect to capital gain or loss. It's the fact that you can't book superficial loses to claim them on your taxes the year you trigger the loss. That's deemed an unfair advantage since you aren't really selling the shares, you're just flipping them to claim tax loss now rather than down the road. 

ltr


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## like_to_retire (Oct 9, 2016)

moneyhungry87 said:


> ............... i'm confused here.


OK, a picture is worth a thousand words so I looked on the internet for a good example so that I wouldn't have to type one out.

See attached, Loss 1, where the sale and immediate repurchase results in a $2000 loss (red circled). The actual gain over the total period is $3000.

See attached, Loss 2, where the $2000 loss is then disallowed as superficial, and is added to the cost base (red arrow), so again the actual gain over the total period is $3000.

View attachment 15514


View attachment 15522



Remember that the conditions that trigger superficial losses might make CRA look at your activity as being trading if you do it a bit too much.

ltr


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## moneyhungry87 (Nov 11, 2016)

ok I got an answer I like from a pro:

Assuming all of these transactions occurred within the same year, it would not make any difference whether the $1,000 capital loss is considered a superficial loss or not. Since a superficial loss can be re-added back to the ACB of repurchased shares, the total capital gain/loss would be the same. In your example, the total capital gain would be $200 either way ($1,000 – $1,000 + $200) assuming all of these transactions occur within the same year.


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## moneyhungry87 (Nov 11, 2016)

like_to_retire said:


> OK, I think I get your confusion. Yes, there's no actual difference in the final sale of the property in the future with respect to capital gain or loss. It's the fact that you can't book superficial loses to claim them on your taxes the year you trigger the loss. That's deemed an unfair advantage since you aren't really selling the shares, you're just flipping them to claim tax loss now rather than down the road.
> 
> ltr


ok thanks!


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