Tax-Loss Harvesting and Superficial Loss Rule (Essay Sample)
Final Assignment – FIP 507 (Representing 20% of Final Grade)
Part 1: 30 marks – 10%
You are a well-respected financial planning group, based in Toronto, Ontario. Your two largest clients, who are permanent Canadian residents, Mr. and Mrs. Lisko, are personally affected by the events happening in Ukraine. They come to you wanting to divest from Russian exposure to the greatest extent possible in their individual non-registered portfolios— specifically their emerging markets funds, which are currently in an unrealized loss position (combined, ACB: $1,000,000, FMV: $750,000). They have read up on a strategy called tax-loss harvesting and think that is a good idea for them, seeing as how they previously triggered capital gains a couple years back. With this in mind, they want to realize their capital loss for tax purposes, then immediately use the proceeds from their Global Emerging Markets Fund to put into a new investment, the Dynamic Emerging Markets Fund. After conducting some research, you have a high degree of confidence that their claim to capital losses will be disallowed and that their ACB in the new investment will be impacted. Because of this, you have arranged a meeting to discuss these findings. Note: your answers should contain Canadian-only content. Any non-Canadian reference offered in this assignment that supports your response to any question asked will result in a deduction of 1 point per reference, with no limit. It is your responsibility to ensure that you are speaking to facts that pertain to Canada’s Income Tax Act, only.
a) In your own words, what is tax-loss harvesting? (2 marks)
b) What is tax-loss harvesting also known as? (1 mark)
c) Which specific rule will prevent the Lisko’s from claiming a capital loss? (2 marks)
d) Describe it using your own words. (5 marks)
e) What will be their new ACB as a result of their denied capital loss? Show your work. (5 marks)
f) How might you advise the Lisko’s so they can successfully claim their capital losses? (5 marks)
Name
FIP 507
Professor
11 August 2022
Final Assignment – FIP 507: Part 1
* In your own words, what is tax-loss harvesting? (2 marks)
The term "tax-loss harvesting" refers to the practice of selling securities that have lost value in order to achieve a tax loss. The taxpayer hopes to use the money from the sale of the asset to offset additional capital gains because, in Canada, taxpayers can obtain tax benefits even when they experience capital losses from their businesses.
* What is tax-loss harvesting also known as? (1 mark)
Tax-loss harvesting in Canada is also known as tax-loss selling.
* Which specific rule will prevent the Lisko’s
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