This post is by Dorothy Neufeld from Visual Capitalist


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The following content is sponsored by Fidelity Investments

A Step-by-Step Guide to Tax-Loss Harvesting

Market ups and downs can be unnerving, but the good news is that tax-loss harvesting allows investors in Canada to capture tax savings when their portfolio drops in value. While it sounds complicated, a tax-loss harvesting strategy is actually fairly straightforward. An investor can use capital losses to offset capital gains found elsewhere in their portfolio, leading to a lower tax bill. While there are important conditions to keep in mind, investors can use this strategy to enhance portfolio returns over time by reinvesting these tax savings. This graphic from Fidelity Investments shows how tax-loss harvesting works and why it may improve tax efficiency in an investor’s portfolio.

Breaking It Down

Consider a person who invested $50,000 in a mutual fund held in a non-registered account that has dropped by $10,000 in value. To help minimize losses, they took the following steps in a tax-loss harvesting strategy. For the sake of this example, taxes are based on the maximum federal rate and the average maximum provincial tax rate.
  1. Sold investment with a $10,000 loss
  2. Invested $40,000 into a different mutual fund
  3. Used the $10,000 capital loss to offset capital gains realized elsewhere in the non-registered portfolio
  4. Achieved up to $2,550 in tax savings
The investor realized as much as $2,550 in tax savings by utilizing (Read more…)