Can you offset income tax with Capital losses

[MiloshJ]

If you lock in a capital loss before the end of the year, sell a holding that lost money overall this year, can this offset some of the income you've earned? The reason I ask is because I did a coop this whole year, and next 2 years I won't be workig much, so I'd love to be able to do that, and then just claim the capital gains in the next few years if the holding goes back up, as then I will barely have any income.

[Thalo]

Capital loss can only offset a capital gain, but you can carry it forward to future years when you have capital gains and are in a higher income bracket. Myself, I'm declaring any cap gains I have now, not offsetting with any cap losses yet, I will when I"m in a higher bracket.

[MiloshJ]

Are you positive about that? I know for a fact you can put offset $3000-5000 per year in the US.

[Thalo]

Yup, different tax laws there.

[Fiorre]

Read Capital Gains bulletin from CRA website
You can only offset capital gains with capital losses.
You can offset income with what's called non-capital losses.
Go to CRA website and read. It's all there.

[pitz]

Income can only be offset with capital losses in the year of death.

So unless you plan on dying....the answer is no.

[ehmcee]

You also can't declare a capital loss while you still hold the stock. You must sell it and there are rules governing how soon you can buy it back while "taking a loss".

[majesus]

Are you positive about that? I know for a fact you can put offset $3000-5000 per year in the US.

US is US
Canada is Canada.
Different countries, different laws.

[83_gemini]

OTOH the CRA has permitted some fairly awesome tax avoidance schemes. Of course they only work if you're really rich.

[batman321123]

OTOH the CRA has permitted some fairly awesome tax avoidance schemes. Of course they only work if you're really rich.

like?

[Capt.]

Myself, I'm declaring any cap gains I have now, not offsetting with any cap losses yet, I will when I"m in a higher bracket.

Are you sure you can do this? I thought you had to apply allowable capital losses against taxable capital gains and only have the option to convert them into net capital losses for future years if there were no capital gains in the taxation year (or not enough, ACL > TCG ).

[MiloshJ]

What about interest you are paying on any money you borrowed to purchase holdings?

[83_gemini]

Interest on money borrowed to produce income can be deductible. This is the source of some of the spectacular tax avoidance decisions.

My preferred decisions (note my interpretation is not authoritative and I think investing based on tax avoidance is silly):

Ludco Enterprises Ltd. v Canada [2001] SCJ No. 58 which allowed taxpayers who invested in tax-sheltered securities to deduct $6 million in interest expenses for $600k in earned dividends (the capital gain was a apparently untaxed $9.24 million). The reason: the investment produced some income.

Also see Singleton v Canada [2002] SCJ No. 59 where a lawyer who borrowed $300k to invest into his capital account (at his law firm; which had some $300k in it already) and then took out $300k to buy a home created deductible interest because the "direct use" of the borrowing was to earn income (from the capital account).

Stay tuned for the Supreme Court's decision in Lipson; the Federal Court of Appeal used the GAAR (a general anti-avoidance provision in the ITA) to disallow certain deductions.

[grant]

Lipson was a rather complicated scheme and I believe the lower courts were correct in denying the deductibility of the interest. In that case the borrowed money was directly used for personal use.

[Just Confused]

like?

Start a business. There are a multitude of things that are deductible from business income that are not deductible from earned income.

[Thalo]

Are you sure you can do this? I thought you had to apply allowable capital losses against taxable capital gains and only have the option to convert them into net capital losses for future years if there were no capital gains in the taxation year (or not enough, ACL > TCG ).

I mean in the sense of selling my sh1t stocks for capital losses. I'm holding onto them until I'm in a higher bracket.

[83_gemini]

The interesting thing about Lipson is that the GAAR, as I understand it, has been read fairly narrowly. A broader reading could enrich lawyers everywhere.