3 tax-loss harvesting tips to remember

Don’t procrastinate and remember, a buy-back could cost you

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Tax-loss selling season is fast approaching.  Yes, it’s that special time of year when investors dump their losers in an effort to reduce their taxes.

Here are a few things to keep in mind when harvesting tax losses in taxable accounts.

1. Don’t procrastinate

First, don’t wait until the very end of the year to sell your stock because the official transfer of shares occurs on the settlement date, which happens three business days after a trade is executed.

For example, if an individual has a sell order filled on December 30, the shares won’t actually change hands until the new year in the eyes of the Canadian Revenue Agency (CRA).

Complicating matters, those who want to book losses this year should do so on, or before, December 24 due to the many holidays during the Christmas season. In addition, some markets close early on Dec. 24 and trading will likely be thin as people make last minute preparations for the holiday. That’s why it’s wise to sell earlier. (Confirm the dates with your broker because they may change depending on the security in question.)

2. Remember, a buy-back will cost you

Second, it’s important to remember that if you buy back the stock within 30 days of the settlement date of the sale, the CRA will consider it a “superficial loss” that can’t be used to offset capital gains.  The CRA also keeps an eye out for fancy footwork on this front.  So, don’t go trying to buy back the shares early in another account or indulging in some other tomfoolery.

3. Keep an eye out for value vultures

Third, there are value investors who circle the market like sharks at this time of year looking to take advantage of tax-loss sellers. Speaking as one of them, it is a concern. That’s why I prefer to do my tax-loss selling in May or June. That said, booking a loss this year–instead of next year–might still be a smart move depending on the level of expected tax savings.

A word of warning: many people have complicated tax profiles. So, be sure to consult your accountant to figure out the best approach for your individual circumstances.

Safer Canadian Dogs

Investors following the Dogs of the Dow strategy want to buy the 10 highest yielding stocks in the Dow Jones Industrial Average (DJIA), hold them for a year, and then move into the new list of top yielders.

The Dogs of the TSX works the same way but swaps the DJIA for the S&P/TSX 60, which contains 60 of the largest stocks in Canada.

My safer variant of the Dogs of the TSX tracks the 10 stocks in the index with the highest dividend yields provided they also pass a series of safety tests, such as having positive earnings. The idea is to weed out companies that might cut their dividends in the near term. Just be warned, it’s a task that’s easier said than done.

Here’s the updated Safer Dogs of the TSX, representing the top yielders as of November 27. The list is a good starting point for those who want to put some money to work this week.  Just keep in mind, the idea is to hold the stocks for at least a year after purchase – barring some calamity.


Name Price P/B P/E Earnings Yield Dividend Yield
TransCanada (TRP) $42.43 1.78 17.9 5.59% 4.90%
National Bank (NA) $43.64 1.58 9.65 10.36% 4.77%
Bank of Nova Scotia (BNS) $60.83 1.51 11.37 8.80% 4.60%
BCE (BCE) $57.13 3.99 18.79 5.32% 4.55%
CIBC (CM) $99.94 2 11.18 8.95% 4.48%
Shaw (SJR.B) $27.47 2.54 15.35 6.52% 4.31%
Bank of Montreal (BMO) $76.64 1.38 12.09 8.27% 4.28%
Royal Bank of Canada (RY) $75.25 1.97 11.45 8.73% 4.20%
TELUS (T) $41.97 3.39 17.78 5.62% 4.19%
Fortis (FTS) $36.84 1.32 14.29 7.00% 4.07%

Source: Bloomberg, November 27, 2015

Notes

Price: Closing price per share

P/B: Price to Book Value Ratio

P/E: Price to Earnings Ratio

Earnings Yield: Earnings divided by Price, expressed as a percentage

Dividend Yield: Expected-Annual-Dividend divided by Price, expressed as a percentage

As always, do your due diligence before buying any stock, including those featured here. Make sure its situation hasn’t changed in some important way, read the latest press releases and regulatory filings and take special care with stocks that trade infrequently.  Remember, stocks can be risky.  So, be careful out there. (Norm may own shares of some, or all, of the stocks mentioned here.)

Levity and Reflection

So, Anyway…

John Cleese talks to Googlers about his book So, Anyway…, which chronicles his early life and career.

One comment on “3 tax-loss harvesting tips to remember

  1. Is there a particular reason for POTASH being removed from the list?

    Reply

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