It's been a tough year in the financial world. But tax time may provide a glimmer of light if you've lost money on your investments. Financial losses can be claimed on your income tax -- under the right circumstances.
Certified General Accountant Brian Blamey says many of his clients are coming into his office concerned about their investments. They wonder how to claim their financial losses on their income tax to get some of it back.
"Some people think they can write off the decrease in their portfolio even though they haven't yet sold anything which isn't the case. You actually have to sell the stock at a loss before you can claim the capital loss," he warns.
Losses in registered accounts like RRSPs, RRIFs and Tax Free Savings Accounts can not be claimed. It has to be a loss in non-registered investments. The price you paid to buy the stock and the price you sold it at determines whether you actually have a capital loss -- not what the market has been doing lately.
Let's look at what that means analyzing a typical blue chip Canadian bank stock -- CIBC.
When it tumbled last year everyone who owns it felt that loss. But if you've held the stock for a decade for example -- and then sold it when it dropped -- you'd actually have a capital gain because the selling price was higher than you originally paid.
"Initially [one of my clients] didn't believe me he said 'No, I've lost money in this stock' and I said 'No, actually you haven't because of the stock you bought way back when.'"
And when you buy the same stock many times it is the average cost including fees -- that determine whether you have a loss or gain.
So, if you bought half your stock at $50 and the other half at $100 the average cost would be $75.
So if you sold them at $80, it feels like a loss because the price has fallen but you've actually got a $5 per share capital gain.
Another limitation: you can only write off capital losses against capital gains not employment income or other types of income. But Blamey says there is some good news. "For capital losses which are losses on selling investments and that sort of thing, you can carry them back for three years and forward indefinitely." That's right: forever. There is no time limit. So there's plenty of time for the market to recover.
If you've got some capital losses and you are not sure what to do -- get some help from an accountant.
With a report from CTV British Columbia's Chris Olsen