Capital Losses

[AltaRed]

It occurs to me that if you sell stock or mutual funds because in an emergency you need cash, you would have to wait three days for it - not that I ever envisage myself being in that position.

A good reason to always have an HISA and/or a HELOC.

[IdOp]

IdOp I checked and the new HISA trades as a mutual fund like a MMF ...

That's certainly true within limits, for example it has T+1 settlement like a MMF and the orders are placed through the Order Mutual Funds portion of WebBroker using a mutual-fund type symbol. However, the HISA is not a mutual fund and is not covered in the fund prospectus of the related-party fund family (e.g., TDAM and TD CT). For this reason I think it is not possible to switch. For example, if you had wanted to sell the monthly income fund (T+3) you'd have had to wait 2 days to buy the TD HISA (T+1).

In any case I checked to see if I could switch from the TDMI fund to the TD MMF (not HISA) and was told exactly as I have reported. It is because one half of the transaction involves selling a T+3 fund even though it is called a switch.

They really have to settle it at the brokerage account in T+1, otherwise your account could be in deficit for 2 days (as adrian2 pointed out earlier). Now, that said, for tax purposes what matters is what the broker reports to CRA, and this is summarized on the annual T5008 form ("Trading Summary") that we get each new year. When I get a chance I will try to find an old example of this and see if the settlement date on the T5008 matches what was reported for the switch. I realize this will probably be too late to help you, but my curiosity about this is now at the point where I need to know.

In any case it is no big deal. I was trying to do some year end tax planning - should not have left it so late. But it can wait till next year.

It's good to know this wasn't highly critical.

It occurs to me that if you sell stock or mutual funds because in an emergency you need cash, you would have to wait three days for it ...

In the case of a mutual fund, you can get it in 2 days, by switching to the MMF in the same family, then calling the broker the next day to sell the MMF. I have done this at TD-W, and it worked, though there could be a small risk if the reporting stream of the first trade got fouled up. But if you need money in a pinch (say to cover a late-day stock purchase) it can be worth knowing about this.

[IdOp]

Well, I dug into the stuffed envelopes in my drawer and found an example.

Four years ago at Waterhouse I did a switch from a TD e-series equity fund to TD CMM. Both halves of the switch were recorded as settling T+1 on the trade confirmation and on the monthly statement (the same as reported above for a switch I did this year). And I have the T5008 trading summary for the old switch, and it indeed lists the equity fund exit on the T+1 date, fully consistent with the other statements.

So unless the broker reports switches trading in the last 3 days of the year differently, then I still think this should work. But it's now too late this year for me to be a guinea pig and try it to see what happens (though that was a very tempting idea ).

[westinvest]

We're a bit OT, but while we're talking about settlement times, I tried to today to withdraw my current balances from TFSA savings accounts (mine and my wife's), one at President's Choice, one at BMO. Obviously want to do this before year end, as the objective is to redeposit these funds along with 2012 contributions on Jan 2, this time into new BMOIL TFSA accounts. No problem at PCF, log in to online banking, do a transfer, specify tomorrow's date to transfer to my no-fee account. At BMO, no such luck. First, can not do an online transaction to transfer to my chequeing account. Call them up, they will do it with telephone banking - but when I give them the details they tell me the transfer will not happen until Monday - need 48 to 72 hours to process. I told them that was not going to work, because a 2012 withdrawal can not be redeposited until 2013 - so they promised to try and do it tomorrow- we shall see.

So the point above re emergency funds could apply to a TFSA as well, what is called a savings account may not be readily accessible quickly.

[zeno]

On the topic of Capital Losses, is there any consensus on when and how to use them to your advantage in your portfolio allocation.
I have some significant capital losses from a decade ago that I continue to carry forward. All of my investments at this point are in RSP and TFSA accounts, so that loss is just sitting there to be used at some future date.
Is there any advantage to investing in a taxable account now and booking some "free" capital gains or is it always best to wait until TFSA room is used up?
Alternatively are them some typical once in a lifetime transactions (sale of a cottage would be one that springs to mind) for which it's good to save that capital loss?

[newguy]

Alternatively are them some typical once in a lifetime transactions (sale of a cottage would be one that springs to mind) for which it's good to save that capital loss?

Death, you can use them against income IIRC. I thinks that once in a lifetime.

newguy

[adrian2]

Death, you can use them against income IIRC. I thinks that once in a lifetime.

Year of death and the preceding one.

[zeno]

Death, you can use them against income IIRC. I thinks that once in a lifetime.

Year of death and the preceding one.

Good to know. I'm not actually in estate planning range yet, so any clever way to use up capital losses before I die?

[AltaRed]

Good to know. I'm not actually in estate planning range yet, so any clever way to use up capital losses before I die?

Yes. Sell assets with capital gains to use the capital losses as the offset on an ongoing basis. That way, you do not build up a large capital loss base.

[Bylo Selhi]

I don't think he has any to sell. Upthread zeno says, "All of my investments at this point are in RSP and TFSA accounts, so that loss is just sitting there to be used at some future date. Is there any advantage to investing in a taxable account now and booking some "free" capital gains or is it always best to wait until TFSA room is used up?"

By inference all new money goes into RSP or TFSA. I don't see any advantage in using a taxable account instead of available TFSA room in order to generate some capital gains in a taxable account that can be offset by existing losses.

If dying is too drastic a measure (talk about letting the tax tail wag the dog ) then ISTM the best option is to carry the losses forward indefinitely. Unlike some other tax-related carry-forwards (e.g. charitable donations) there's no expiration on capital losses. At some point in the future you may have more funds than tax-sheltered account room, you may invest in a taxable account and thus be able to eventually use the losses.

[IdOp]

The trouble with carrying them forward indefinitely is that (positive) inflation will make them worthless.

Beyond that I haven't put any coherent thought into the whole question.

[AltaRed]

Ooops! I missed the point on nothing in taxable accounts at this time. I do not see any advantage either of investing in anything taxable until TFSA room is used up BUT there may be an advantage to deferring further contributions to the RSP until the capital losses are used up. It would be a complicated calculation with a lot of variables and assumptions with no clear outcome.

[zeno]

Thanks Alta and Bylo. I thought as much myself, but was idly pondering the value of the virtual gold mine that is my ancient capital loss. I thought the wizards of the webring might have an exotic strategy worth considering.
The death gambit is too drastic for me so I'll keep it for future gains. The mortgage will be paid off in 12 months and my savings rate will finally get to the level that it exceeds TFSA and RSP room. The losses will come in handy one day.

[DavidR]

exotic strategy worth considering...

Buy flow-through shares...

[AltaRed]

exotic strategy worth considering...

Buy flow-through shares...

Trouble is it seems most flow through shares turn out to be mainly a tax strategy, not an investment strategy. How many of those actually make any money which in my books should be the objective in the first place? The only 'tax strategy' I ever participated in was one of those CI mutual fund LPs back in the '90s,and to this day, I am not sure it did much for me.