What Is the Superficial Loss Rule?

248 Replies

The superficial loss rule defines certain situations in which capital losses are disallowed. Section 54 of the Income Tax Act indicates that a superficial loss is a loss occurring from the sale of property when both of the following two conditions are met:

During the period that begins 30 days before and ends 30 days after the disposition, the taxpayer or a person affiliated with the taxpayer acquires a property (in this definition referred to as the “substituted property”) that is, or is identical to, the particular property.

AND

At the end of that period, the taxpayer or a person affiliated with the taxpayer owns or had a right to acquire the substituted property.

Overview of the Superficial Loss Rule

In cases where a superficial loss occurs, the capital loss cannot be claimed. Depending on the circumstances, the loss may be either permanently denied, denied but added to the adjusted cost base of any remaining or repurchased shares (with the effect of deferring the capital loss and reducing the capital gain when the remaining shares are eventually sold), or in some cases partially denied.

The superficial loss rule applies to the period beginning 30 days before the settlement date of the sale transaction for the capital loss in question, until 30 days after the settlement date. This encompasses a 61-day period (the 30-day period before the settlement date of the sale, the settlement date itself, and the 30-day period after the settlement date). This time period is illustrated in the diagram below:

As an example, suppose that a settlement date for a sale occurs on September 5th, 2014. The 61-day superficial loss period would be from August 6th, 2014 to October 5th, 2014 inclusive, as shown below:

Note that this time period is defined in terms of calendar days — not business days or stock market trading days.

If a sale transaction triggers a loss, the superficial loss rule will apply if the following conditions are met: you’ve bought the same or identical property during this 61-day period, and you still own or have the right to acquire the same or identical property at the end of the 61-day period. In such a case, all or part of the capital loss will be denied.

The superficial loss rule is in place in order to prevent taxpayers from partaking in artificial transactions for the purpose of triggering an immediate capital loss. Without the existence of the superficial loss rule, a taxpayer would be able to sell shares, trigger a capital loss, then immediately repurchase the same shares. In other words, a capital loss could be harvested without any meaningful change in ownership. Note that if this were allowed, the total capital loss (or gain) over the holding period would be the same regardless of whether or not the loss harvesting transaction takes place (as we’ll see with some examples below). However, triggering the capital loss immediately has the advantage of providing a tax advantage sooner rather than later. This is because the capital loss can be applied against any capital gains right away, as opposed to when the shares are sold in a more permanent fashion in the future. This can be viewed as advantageous due to the time value of money (a dollar today is worth more than a dollar tomorrow). The purpose of the superficial loss legislation is to remove the advantage that would result from these kinds of artificial transactions.

To be clear, transactions that fall under the conditions of the superficial loss rule are not illegal (for example, they’re not akin to insider trading). You’re perfectly within your rights to engage in transactions that follow under these conditions. However, you must make sure that you don’t claim a capital loss in a case where it’s disallowed by the superficial loss rule.

Example #1

Let’s look at an example. Suppose that you purchase 100 shares of XYZ Inc. for $50 per share with a settlement date of January 6th, 2014. The ACB becomes $5,000 or $50 per share (assuming no transaction costs for simplicity). Then the share value declines to $30 per share. Let’s assume that you believe the shares are undervalued and that the share price will increase in the future so you want to maintain ownership of the shares. But with the decline in value, you see the opportunity to trigger a capital loss to reduce your tax bill for the current year. So, you sell all 100 shares on November 3rd, 2014 for $30 per share. You record a loss equal to $2,000 ((100 shares x $30/share) — $5,000). Then, because you’d like to maintain ownership, you repurchase 100 shares for $30 per share with a settlement date of November 4th, 2014 (since it’s only been a day, it’s likely that the share price hasn’t changed by much). Ignoring the superficial loss rule, your ACB becomes $3,000 or $30 per share. 5 years later, the share price has risen to $80. You sell your 100 shares with a settlement date of December 2nd, 2015, and realize a capital gain of $5,000 ((100 shares x $80/share) — $3,000). These transactions are summarized below:

Violation of the Superficial Loss Rule

	Settlement Date	Transaction	Shares Bought or Sold	Price Per Share	Share Balance	ACB	ACB per Share	Capital Gain (Loss)
1.	2014-01-06	Buy	100	$50	100	$5,000	$50	–
2.	2014-11-03	Sell	100	$30	0	$0	$0	($2,000)
3.	2014-11-04	Buy	100	$30	100	$3,000	$30	–
4.	2015-12-02	Sell	100	$80	0	$0	$0	$5,000

Note that the net capital gain over the holding period is $3,000 ($5,000 — $2,000). Claiming the capital loss for the November 3rd, 2014 transaction is not allowed according to the superficial loss rule. This is because a repurchase of shares happens within the 61-day period centred around the sale settlement date (specifically, the repurchase happens just 1 day after the sale). Also, the shares are still owned at the end of the 61-day period, satisfying the other half of the superficial loss rule.

In the table above, we have incorrectly assumed that the superficial loss rule does not apply and that the capital loss can be claimed. But according to the superficial loss rule, the loss should in fact be denied, and the amount should be added back to the ACB. So the transactions should be recorded as follows:

Applying the Superficial Loss Rule

	Settlement Date	Transaction	Shares Bought or Sold	Price Per Share	Share Balance	ACB	ACB per Share	Capital Gain (Loss)
1.	2014-01-06	Buy	100	$50	100	$5,000	$50	–
2.	2014-11-03	Sell	100	$30	0	$0	$0	~~($2,000)~~ $0
3.	2014-11-04	Buy	100	$30	100	~~$3,000~~ $5,000	~~$30~~ $50	–
4.	2015-12-02	Sell	100	$80	0	$0	$0	~~$5,000~~ $3,000

Applying the superficial loss rule results in a capital loss of $0 for November 3rd, 2014 and a capital gain of $3,000 on December 2nd, 2015. The denied capital loss of $2,000 is subsequently added to the ACB. The total net capital gain, $3,000, is the same as above when we ignore the superficial loss rule. Although the net capital gain is identical in both cases, the first interpretation of the transactions is likely to be more desirable from the taxpayer’s point of view due to the time value of money. But the CRA does not allow a capital loss to be claimed on November 3rd, 2014 because it’s deemed to be a superficial loss.

Example #2

As you can see, the superficial loss rule disallows claiming a capital loss when you sell shares and then repurchase them shortly after (within 30 days following the settlement date of the sale). But what about the other way around? What if you own shares that have declined in value – can you purchase more shares and then sell them immediately after to trigger a capital loss?

Let’s look at a second example, similar to the one above but with a slightly different set of transactions:

January 6th, 2014: Buy 100 shares for $50 per share
November 3rd, 2014: Buy 100 shares for $30 per share
November 4th, 2014: Sell 100 shares for $30 per share
December 2nd, 2015: Sell 100 shares for $80 per share

If we ignore the superficial loss rule, the transactions can be summarized as follows:

Violation of the Superficial Loss Rule

	Settlement Date	Transaction	Shares Bought or Sold	Price Per Share	Share Balance	ACB	ACB per Share	Capital Gain (Loss)
1.	2014-01-06	Buy	100	$50	100	$5,000	$50	–
2.	2014-11-03	Buy	100	$30	200	$8,000	$40	–
3.	2014-11-04	Sell	100	$30	100	$4,000	$40	($1,000)
4.	2015-12-02	Sell	100	$80	0	$0	$0	$4,000

Should the superficial loss rule apply here? It’s more common to discuss the superficial loss rule in cases where shares are sold and repurchased shortly after. But the superficial loss rule can also apply when shares are bought and subsequently sold. In this case both conditions of the superficial loss rule are satisfied: a purchase occurs during the 61-day period centered around the sale (it occurs the day before) and some shares are still held at the end of the 61-day period. So according to the superficial loss rule, the capital loss on November 4th, 2014 is denied.

The correct recording of the transactions is as follows:

Applying the Superficial Loss Rule

	Settlement Date	Transaction	Shares Bought or Sold	Price Per Share	Share Balance	ACB	ACB per Share	Capital Gain (Loss)
1.	2014-01-06	Buy	100	$50	100	$5,000	$50	–
2.	2014-11-03	Buy	100	$30	200	$8,000	$40	–
3.	2014-11-04	Sell	100	$30	100	~~$4,000~~ $5,000	~~$40~~ $50	~~($1,000)~~ $0
4.	2015-12-02	Sell	100	$80	0	$0	$0	~~$4,000~~ $3,000

Note that in both cases the net capital gain over the entire holding period is $3,000 (this was also the case in the first example). The artificial transactions would not affect the net capital gain over the entire holding period, regardless of whether the superficial loss rule is applied. But in the first (incorrectly calculated) case, the cash flow would typically be considered better for the taxpayer due to the time value of money. Due to the superficial loss rule, the second account of the transactions must be used.

In these cases the superficial loss rule does not deny the loss permanently (although there are some cases where a permanent denial would occur). When the superficial loss rule is applied in both examples, the ACB is increased by the amount of the denied loss, so the capital loss (or reduction in capital gain) is deferred into the future.

Identical Property and Affiliated Persons: Additional Conditions for the Superficial Loss Rule

The definition of the superficial loss rule includes a couple of notions that require further explanation: identical property and affiliated persons. Shares of the same class of the same corporation would be considered identical property. However, shares of two similar companies, in the same industry, would not be considered identical property. Two ETF’s tracking the same index would be considered identical property. But if the ETF’s do not track the same index, they would not be considered identical property, even if they track the same sector, industry, or asset class.

The definition of affiliated persons includes yourself, your spouse, or a corporation, partnership or trust controlled by you or your spouse. If any of these individuals or entities purchase identical property within the 61-day period centered around a date you sell the property, the superficial loss rule will apply.

Also, special care needs to be taken for transactions within registered accounts, such as RRSPs, TFSAs, RRIFs, and RESPs. The superficial loss rule will apply when a sale outside of a registered account coincides with a purchase of identical property inside a registered account within the 61-day period. However, in these cases, the capital loss is permanently forfeited and cannot be added to the ACB of the non-registered shares. You could also think of this as if the ACB is added to the ACB of the registered shares, but since ACB does not apply to registered shares, it’s as if the capital loss is permanently denied.

You’ll need to consider more than just the transactions that occur within the same account. You’ll need to examine transactions occurring in all your accounts (including registered accounts) and other accounts controlled by you and your spouse.

Adding the Denied Capital Loss to Your Adjusted Cost Base

In the examples above, where a combination of a sale and repurchase occurs in the same account, the denied capital loss is directly added back to the ACB. In situations where the repurchase occurs in a different account, the denied capital loss should be added to the ACB of the shares in the account where the repurchase occurs.

For example, suppose you sell some shares at a loss and the next day your spouse repurchases the same shares. This would indeed trigger the superficial loss rule and the capital loss would be denied. In this scenario, the denied capital loss should be added to your spouse’s ACB, not your own ACB.

Similarly, when you sell some shares at a loss in your non-registered account and repurchase the same shares the next day in your RRSP account, the superficial loss rule applies. In this case the denied loss would be added to the ACB for the RRSP account since that’s where the repurchase occurred. But ACB is completely meaningless in the context of a registered account since capital gains within the account are not taxable. This is why the application of the superficial loss rule between a registered and non-registered account results in the loss being permanently denied.

What About “Superficial Gains”?

Since the superficial loss rule denies capital losses under certain circumstances, you might ask, can capital gains be avoided in certain cases? For example, if you sell shares and realize a capital gain, but immediately repurchase the shares, can you call this a “superficial gain” and defer the capital gain? The answer is no: you cannot defer the capital gain and there is no such thing as a “superficial gain.” The capital gain is taxable immediately in the current tax year, even if the shares are repurchased within 30 days.

Capital Account vs. Income Account

The descriptions above apply for transactions recorded on capital account. If the transactions are on income account, different rules will apply. Some of the conditions that the CRA uses to decide whether your trading activity is on income account may be heavily correlated with the conditions for triggering the superficial loss rule. For example, the CRA may consider your transactions to be on income account if you trade frequently and have short periods of ownership — two conditions that go hand in hand with the superficial loss rule.

The conditions for your trading activity to be considered on income account are complex and can be open to interpretation, so you should seek the help of a professional if you’re unsure where you stand.

When Shares are Fully Sold Quickly After Being Purchased

How about when shares and bought, and then fully sold immediately after? Can a capital loss be claimed in this case? As long as all the shares a sold, and you don’t repurchase the shares within the 30-day period following the sale’s settlement date, you can claim a capital loss. Remember that two conditions must apply for the superficial loss rule: shares must be bought within the 61-day period, AND, some shares must still be owned at the end of the period. In the case where all shares are sold (and nothing’s repurchased) the superficial loss rule does not apply as long as you don’t own any shares at the end of the 61-day period.

Again, this is assuming that you’re trading on capital account. A high trading frequency and short holding period could result in your transactions being considered on income account (see above).

How Can You Avoid the Superficial Loss Rule?

To avoid triggering the superficial loss rule, you can simply wait. After you’ve bough shares, make sure to wait at least 30 days before selling them (unless you sell all your shares). After you’ve sold shares, make sure to wait at least 30 days before repurchasing them. Note that share prices can fluctuate wildly over this time period, so there’s a risk that the share price can increase substantially by the time you plan to repurchase the shares.

Another option is to repurchase, similar, but not identical property. For example, you could purchase shares of another company in the same industry, or you could purchase another ETF tracking a different index.

Options and Superficial Losses

In Section 54 of the Income Tax Act, the definition of the superficial loss rule includes the following:

“for the purpose of this definition…a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property”

This suggests that for the purposes of determining the superficial loss rule, call options and their underlying shares are deemed to be identical properties. Therefore, the superficial loss rule applies in each of the following situations, assuming that you also still own shares or call options on those shares at the end of the superficial loss period:

Call options are sold at a loss and the underlying shares from those call options are bought during the superficial loss period.
Shares are sold at a loss and call options on those shares are bought during the superficial loss period.
Call options are sold at a loss and call options on the same shares are bought during the superficial loss period. This is the case even if the call options differ in strike prices and expiry dates.

The Income Tax Act specifies that the superficial loss rule does not apply when the disposition is the expiry of a call option.

AdjustedCostBase.ca and the Superficial Loss Rule

AdjustedCostBase.ca has a feature to identify when superficial losses occur (but only in some cases). The tool also allows you to manually apply the superficial loss rule to your sale transactions. Further details on this are provided here.

Conclusions

Indeed, the superficial loss rule can be tricky and cumbersome to follow. A large onus has been placed on taxpayers to understand the rules and apply them towards calculating capital gains and losses. It’s been argued that the superficial loss rule is a “trap for the unwary, unknowledgeable, and unlucky.” The superficial loss rule has been criticized for being easy to circumvent by knowledgeable people aiming to harvest capital losses, while also easy to inadvertently violate by those without any ill intentions. But for the time being, Canadian investors must either take precautions not to violate the rule, or recognize when the rule applies and defer capital losses accordingly.

248 thoughts on “What Is the Superficial Loss Rule?”

Tyler October 29, 2014 at 11:27 am

Hi, thanks for another informative post. To be clear: if I bought (more than 30 days ago) 100 shares of something for $100 each, and today I sell half of them for $90, I can still claim this as a capital loss? (assuming I don’t re-purchase them)

Thanks
AdjustedCostBase.ca November 2, 2014 at 9:17 pm

Hi Tyler,

You’re correct that in that scenario the superficial loss rule would not apply. Although one condition (you still own shares after the 61-day period) for the superficial loss rule has been met, the other condition (buying shares within the 61-day period) has not been met.
Jordan Hamilton November 7, 2014 at 2:06 am

Hi, ty for the in depth info and example. I have a question similar to Example 2. For instance: If the settlement date of the last sell was “2014-11-05” instead of “2015-12-02” (assume no more repurchase) how will the (captial gain / loss) deferred? Will it still be reported in April 2015 or 2016 since on CRA website stated “If you have a superficial loss in 20XX, you cannot deduct it when you calculate your income for the year.

Thankyou!
AdjustedCostBase.ca November 7, 2014 at 2:57 pm

Jordan,

Assuming the settlement date for the last sale transaction were 2014-11-05 in Example 2, the superficial loss rule would not apply to either sale transaction. Although shares are purchased within the 61-day period, the second condition of the superficial loss rule is not satified: no shares would be still owned 31 days after 2014-11-05 nor 31 days after 2014-11-04. You’d be able to claim the entire capital loss for the 2014 tax year.
Jordon Hamilton November 8, 2014 at 12:08 am

Hi, ty for the quick reply. Sorry I didn’t stated my second question too clear. Using Example 2 again, If the entire stock were sold on 2015-12-02 with a (capital loss of $3000 instead of gain). Will the capital loss gets claim on 2015 tax year or will it get deferred to 2016…etc, since you mention it gets deferred into future when a superficial loss occurs.

Thankyou!
AdjustedCostBase.ca November 8, 2014 at 9:05 am

If all shares are sold on 2015-12-02 the superficial loss rule would not apply as long as no shares were still held at the end of the 61-day period (2016-01-01). The capital loss can be claimed for the 2015 tax year.
Jordan Hamilton November 8, 2014 at 1:46 pm

Thank you so much everything it’s clear for me on the superficial loss rule now, really appreciate your effort on helping.
AdjustedCostBase.ca November 8, 2014 at 2:07 pm

You’re most welcome, Jordan!
SS January 3, 2015 at 10:10 pm

Regarding superficial loss, if you buy in and out of a stock several times throughout the year, but sell it all before December (no more purchases within the last 30 days of the year) does it matter? All the gains and losses would have to be claimed for that year anyway. In other words, if all your purchases and sales of a stock were between January and November of the same year, does it matter? Thanks in advance!
AdjustedCostBase.ca January 4, 2015 at 11:48 am

SS,

That’s correct – the net capital loss or gain would apply for that year, as long as no more units are owned 30 days after the last sale. The superficial loss rule may cause losses in the earlier transactions to be deferred, but in this particular case this has no effect on capital gain/loss reporting since all the transactions occur in the same year.
JJ February 23, 2015 at 9:23 pm

Does the superficial loss rule apply to capital losses due to disposition of foreign currency cash? With a foreign currency brokerage account, it strikes me that unless it was being used very infrequently, that nearly all capital losses due to currency exchange would classify as a superficial loss.
AdjustedCostBase.ca February 23, 2015 at 11:36 pm

JJ,

I’m not aware of any exemption to the superficial loss rule for foreign currency cash.
P February 27, 2015 at 12:11 pm

This post has been a big help. In my specific case, with regard to Example 1, could I claim the final capital loss of $3000 because of transactions in my non-registered even though I continue to hold shares of the same stock in my RRSP at the time? Note that I made no purchases of the stock in the 61 day window in any account.
AdjustedCostBase.ca February 27, 2015 at 1:27 pm

If you didn’t make any purchases in the 61-day window but still own shares 31 days following a sale that triggers a capital loss, the superficial loss rule does not apply and you’re eligible to claim the loss. For the superficial loss rule to apply, both of the conditions mentioned must be met.
Flame March 8, 2015 at 10:38 pm

Hi, first of all I’d like to thank you for writing up this guide, its incredibly helpful. This will my first time filing for taxes, I have some transactions I’m not entirely sure about as to whether or not they break the superficial tax loss rule. If you could clarify whether or not any of these transactions break that rule I would really appreciate it!

[redacted]
AdjustedCostBase.ca March 8, 2015 at 11:23 pm

Flame,

I would suggest that you enter these transactions into AdjustedCostBase.ca. In many cases a warning will be shown when the superficial loss rule may apply, as described here:

http://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-with-adjusted-cost-base-ca/

Note, however, that further information would be required in some cases to determine with certainty whether the superficial loss rule applies (such as transactions in your spouse’s accounts, in registered accounts, and transactions involving other property that would be considered identical).
Harold Leroux March 15, 2015 at 12:43 pm

How is the situation handled where a stock in a company held in a non-registered account is sold at a loss and repurchased the next day in a registered account (RRSP) but sold 29 days after re-purchase (i.e. just within the 30 day time limit) so that no stock remains in either account 30 days after the first sale. Having no stock left in either account would appear to satisfy the second requirement and thus allow the capital loss in the non-registered account to be recognized.
If the above argument is valid then presumably the stock could be repurchased in the non-registered account again the next day.

Along the same line using Example 1 and assuming all transactions are within a non-registered account, what if the second sale of the stock in the Example was just within the 30 day limit such that no stock of this company remained in the account after this second sale. Presumably the capital loss of the first sale would be recognized because it meets both criteria. Then what if the stock was repurchased the next day just beyond the 30 day limit of the first sale assuming this was arranged so the settlement date of the purchase would occur in the following year. Presumably this new purchase would trigger the superficial loss provisions once again but it is not clear at what ACB. In any case it would appear this should allow the loss to be used in the previous year. Please comment on this.

Thanks,
Harold
AdjustedCostBase.ca March 15, 2015 at 4:41 pm

Harold,

Regarding your first question, yes, you would be able to apply the capital loss since the second condition of the superficial loss rule is not satisfied. (As long as the dates you’re talking about are settlement dates and not trade dates. It’s important to be careful about the trade date vs. settlement date when pushing the boundaries of the superficial loss rule window. The window is defined in terms of calendar days, and a trade towards the end of the week could push the settlement date into the following week due to weekend days or holidays, which could put it outside the window.)

For your second question, could you provide and example with specific transactions and dates? I would also encourage you to try this out using AdjustedCostBase.ca, as you should see warning if the superficial loss rule is violated (in cases like this where all transactions are in a non-registered account, and as long as all relevant transactions are inputted).
Harold Leroux March 16, 2015 at 11:59 am

Here is an example:
Transactions
Date Trans Amount Shares Amt/Share Gain (Loss) Share Balance Change in ACB New ACB New ACB/Share
2014-Jan-02 Buy $10,000 100 $100 100 $10,000 $10,000 $100
2014-Dec-01 Sell $5,000 100 $50 -$5,000 0 -$10,000 $0
2014-Dec-02 Buy $5,000 100 $50 100 $5,000 $5,000 $50
2014-Dec-31 Sell $5,000 100 $50 0 -$5,000 $0
2015-Jan-02 Buy $5,000 100 $50 100 $5,000 $5,000 $50

The above is a modified excerpt from the transactions in adjustcostbase.ca. It was not clear to me that the date to be provided in the calculator is to be the transaction date or the settlement date. I assumed the settlement date as the transaction date would appear to be meaningless as far as interpretation of the Act. Transaction dates would have be 3 business days earlier if that worked out (i.e. a day when the markets are open). Otherwise some adjustment to the settlement dates in this example would be required. It was also not clear to me whether to select the “Apply Superficial Loss Rule” button in the calculator or not. In applying it the calculator simply disallowed the loss. However as of December 31 there are no shares of the Company in the account at the 30 day limit after the December 1 Sell date (i.e at the end of the day on December 31 there are no shares). So it would then seem that the loss for this transaction should be allowed.
AdjustedCostBase.ca March 16, 2015 at 1:10 pm

Harold,

For the sell transaction on 2014-Dec-01 there are no shares owned after 30 days later, so the superficial loss rule would not apply in either case. For the sell transaction on 2014-Dec-31, shares are still owned after 30 days, so the superficial loss might apply, however, in this case the sale of 2014-Dec-31 has a capital gain of $0. Since there is no loss, the superficial loss rule is not applicable.

See the following for an explanation about trade dates and settlement dates:

http://www.adjustedcostbase.ca/blog/understanding-trade-dates-and-settlement-dates/

And a tutorial about using the “Apply Superficial Loss Rule” option on AdjustedCostBase.ca is available here:

http://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-with-adjusted-cost-base-ca/
Harold March 16, 2015 at 3:34 pm

Thanks for all the information. It seems the spaces between the columns of the example disappear when posting which makes for difficult reading. In any case, my example shows a purchase of 100 shares on Jan 2, 2015 which is the first trading day in 2015 and 2 days after the second sale. So in my example I am showing ownership of shares within the 30 days of the second sale but not the first.
AdjustedCostBase.ca March 16, 2015 at 3:57 pm

Harold,

Sorry for the confusion. I’ve updated my response above.
Bob April 8, 2015 at 9:00 am

Hi There,

I would love some help here. I recently sold a stock for a 43k loss….29 days later I repurchased the stock and made 10000 in the day and sold it. I realize my mistake now but just wondering what the tax consequences will be? Also I am interested in repurchasing this stock and am wondering if somehow if I can make capitla gains if that could offset the initial loss of 43k.

thanks very much,
Bob
AdjustedCostBase.ca April 8, 2015 at 11:25 am

Bob,

It looks like the superficial loss rule would apply for the first sale and the $43k loss would be initially denied. But the amount of the denied loss should be added back to the ACB for the repurchased shares. Although I can’t say with certainty without knowing all the details, it would appear that due to the ACB being increased by $43k, the gain of $10k may actually be a capital loss of $33k ($10k – $43k).
Andy August 3, 2015 at 7:45 pm

Hi, thanks for the examples on this blog. It makes things quite clear.
I was wondering what they mean by “right to acquire”?
AdjustedCostBase.ca August 4, 2015 at 2:17 pm

Andy,

This refers to stock options – specifically owning call options.
Sherry August 30, 2015 at 11:43 am

Hi,

Just found out I may have made a mistake. Incorrect advice from my on line brokerage!
I recently sold all the shares of a stock (1000) for a 21,100K loss. A week later I bought back 200 shares at 13.00. After reading your articles I assume this means I can only claim the other 800 shares for a capital loss. Is this correct. How do I figure out the ACB of the the 200 shares I now own. Original share price was $36.00

Thanks for your help.
AdjustedCostBase.ca August 30, 2015 at 2:07 pm

Sherry,

It sounds like the superficial loss rule would apply in your case, however, it would only apply to a portion of the capital loss. Further information about this subject can be found here:

http://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/
Jacob November 8, 2015 at 5:22 pm

Hello,

Thanks for the in depth information regarding this important topic. Here is the situation I will like clarity on. I buy and sell same stock ABC on the same day (i.e. stock is sold the same day it was purchased) and this happens everyday throughout the year. Most of the times I sell for gain and at other times I sell for loss such that the net at the end of the year is positive (gain). Note that when I sell, I sell in full (not partial sell). Here are now my questions based on this:

1. For all the transactions (buy/sell) that happen in the same year, can I use my capital gains to offset my losses as capital losses?
2. If the answer to question 1 is YES and considering the 61-day requirement, will losses I make in the last 30 days of the year trading the way I explained qualify to be claimed as capital losses against capital gains for the year if the losses and gains settled by the last settlement day in the year? Or I the loss activities in the last 30 days of the year will trigger superficial loss situation?
3. Can I use the capital gain I made from daily buying/selling to offset the capital loss from sale of another stock XYZ that I actually held for over 3 months and never purchased it again more than 3 months after selling it for loss?
4. You wrote about “Capital Account” and “Income Account” and how CRA may view an account as income account if the stocks in the account trade frequently and are held for short period like I currently do. In this case will making an election to CRA using for T123 allow the account to always be treated as “Capital Account” despite the high frequency of trading and short holding period?

Your answers and comments to each of these questions individually will be very much appreciated.

Warn regards,
Jacob
Stephen November 19, 2015 at 8:38 am

Hi,
Could you please clarify: does the superficial loss rule apply if I am a high frequency trader reporting trading profits as business income (income account)?
Many thanks,
Stephen
AdjustedCostBase.ca November 19, 2015 at 11:04 am

Stephen,

The superficial loss rule is only applicable on capital account, not on income account.
Marc December 3, 2015 at 1:55 pm

After selling a stock for a loss, what happens if I immediately sell naked puts on the same underlying and a) they expire worthless or b) the naked puts are closed out for a profit/loss?

Thanks!
AdjustedCostBase.ca December 4, 2015 at 10:58 pm

Marc,

I believe that the superficial loss rule would not apply (assuming no other transactions around the same time) as you would not own any shares or the right to acquire shares after the sale of the stock. For further information on calculating capital gains for stock options please see the following page:

http://www.adjustedcostbase.ca/blog/adjusted-cost-base-and-capital-gains-for-stock-options/
Roz January 21, 2016 at 1:30 pm

how do you calculate the acb for shares bought with a discount given by company of your employment. what is claimed as cap gain/loss, what cost base is used, the discounted price upon purchase or the real price it was purchased at. will the discount need to declared as part of employment income as taxable benefits? thanks a lot in advance.
AdjustedCostBase.ca January 23, 2016 at 6:12 pm

Roz,

I’m hoping to address the topic of employee stock options in a future post.
AdjustedCostBase.ca January 23, 2016 at 6:27 pm

Jacob,

1. If you’re fully selling your entire position at the end of each day, then I don’t believe that the superficial loss rule would apply. Although the first condition for the superficial loss rule above would be met, the second condition would not be. This you should be able to use all capital losses to offset capital gains.

2. Yes, in this case you should still be able to claim losses for trades that settle in the last 30 days of the year in that same year. However, whether or not the superficial loss rule applies will depend on whether you own the shares at the end of each of the first 30 days of the following year. As long as you continue your strategy of liquidating at the end of each day than I don’t think the superficial loss rule would apply.

3. Capital losses can be used to offset losses for capital gains resulting from any capital property (not just the gains from identical property). These losses can be applied against gains for the current year, or be carried back up to 3 years, or be carried forward indefinitely (for further information about this please see http://www.adjustedcostbase.ca/blog/applying-capital-losses-to-previous-tax-years/).

4. I hope to address the issue of capital account vs. income account in a future post. In the meantime some additional information about this is provided by the CRA here: http://www.cra-arc.gc.ca/E/pub/tp/it479r/it479r-e.html.
james February 27, 2016 at 11:22 pm

So what if you sold some shares but still held many more, received your dividends and that was automatically used in a drip and repurchased a few shares within 30 days? It was kind of an accident and I need to know what to do as it affected a loss that I wanted to claim on that sale although only partially.
AdjustedCostBase.ca February 28, 2016 at 10:02 am

James,

The superficial loss rule could still be triggered in that case, despite it being a DRIP and despite it being an accident. However, it’s likely that only a small portion of the loss would be denied (see http://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/).
jmc April 14, 2016 at 6:55 pm

Hello AdjustedCostBase.ca,

To try and better understand the superficial loss rule, I entered both Example #1 and Example #2 (your examples from this posting) into adjustedcostbase.ca. Example #1 returns with a warning that the superficial loss rule may apply. Example #2 returns no warning about the superficial loss rule. Any insight as to why Example #2 returns no warning would help my understanding of the superficial loss rule.

Thank you.
AdjustedCostBase.ca April 14, 2016 at 8:10 pm

jmc,

Thank you for reporting the issue. It should be resolved now and you should see the warning for both cases.
John April 18, 2016 at 12:37 am

If i buy 100 shares of a stock for $120 in year 1 and then sell 200 (becomes net short position of -100) at $260 in year 2 what is the tax treatment?

Does this change if instead i said the stock was actually usd currency? I buy 100usd for 120cad and then buy 260cad worth of US shares using 200usd (100usd is “borrowed” or shorted).

Struggling with the tax treatment for USD denominated futures (obviously using leverage) as i know how to calculate the capital gains on futures but not sure about the currency. The way the USD has appreciated seems like i get hit paying gains on the futures related to currency (on the borrowed funds) but the loss incurred on shorting USD never gets realized because i don’t plan to convert my USD back to CAD anytime soon.

Your advice is appreciated.
AdjustedCostBase.ca April 18, 2016 at 8:45 am

John,

Gains and losses on short sales are generally considered to be on income account as opposed to capital account (with a few exceptions such as when the short forms part of a hedge position).
jmc April 21, 2016 at 4:45 am

AdjustedCostBase.ca,

Thank you for your quick reply to my comment and for resolving the issue. Both Example #1 and Example #2 return a warning about the superficial loss rule.

Do I report a sell that results in a superficial loss?

If no, do I just keep tracking ACB as usual? If yes, I am not clear how to report a sell that results in a superficial loss. If I am understanding correctly, from a sell transaction using adjustedcostbase.ca, the absolute value of the “change in ACB” is the ACB of the units sold. If this is correct, when the superficial loss rule is applied to the sell transaction, the ACB of the units sold becomes equal to the sell amount (or proceeds of disposition).

Do I report the sell on Schedule 3 with Proceeds of Disposition and Adjusted Cost Base being the same value resulting in a gain (or loss) of zero?

Thank you.
AdjustedCostBase.ca April 22, 2016 at 3:38 pm

jmc,

The CRA isn’t clear about whether they want transactions involving superficial losses to be reported on Schedule 3. In cases where the superficial loss rule reduces a capital loss to zero, I would suggest not reporting the loss as it could cause confusion. If you would like to still report the loss then the adjusted cost base can be changed such that it equals the proceeds of disposition less the commission.
Rob April 23, 2016 at 11:24 am

Would Class A shares of a mutual fund and class F shares of the same mutual fund be considered “identical properties” for the superficial loss rule?

(The only real difference between Class A and Class F relates to fees. Class F units have lower fees and are only available for sale through an investment advisor (who charges his or her own additional fees!)).

P.S. I found a similar discussion on the internet. It looks like the CRA does not consider voting and non voting common shares of a company (e.g. Class A vs Class B) “identical properties” unless there is a right of conversion (to non voting shares) attached to the voting shares. But I am not sure how that logic extends to Class A vs Class F units of a mutual fund. Often one is able to convert the class F units to class A units (typically if you fired your advisor and transferred converted class A units to a discount brokerage account). Is that a right of conversion?

Anyone have any insights?
Michael July 10, 2016 at 10:18 am

Hi there,
Thank you for posting this informative article. I have a question about how to calculate my new ACB in the case where I have repurchased the shares I had just sold the day before for a lower price. Here is the example:

I own 1000 shares with a an ACB of $80 per share.
I sell 500 shares at $75 for a capital loss of $2500 plus $10 in commission expenses.
I buy the 500 shares back the next day for $70 plus $10 in commission expenses.

How do I calculate my new ACB? Do I include the commission expenses into the ACB?

Have the transactions above resulted in a capital gain that needs to be claimed in the tax year (assume all these transactions occurred within the same tax year.

Thank you for your time and consideration in responding to these questions.
AdjustedCostBase.ca July 11, 2016 at 10:41 am

Michael,

There would be a capital loss of $2,510 ((($75/share x 500 shares) – $10) – ($80/share x 500 shares)). Assuming that there are no other transactions, both conditions for the superficial loss rule would be met, indicating that this is indeed a superficial loss.

In that case, the superficial loss should be added back into the ACB, resulting in a total ACB (after the repurchase) of:

$80,000 – $40,000 + $2,510 + ($70/share x 500 shares) + $10
= $77,520

Note that this can be calculated on AdjustedCostBase.ca as described here:

http://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-with-adjusted-cost-base-ca/
Michael July 13, 2016 at 9:35 am

Thank you for the response. Much appreciated. It seems so simple now that I see it. I knew I had generated a superficial loss, but I couldn’t figure out whether or not I had to claim a capital gain since I had repurchased the shares at a lower price. Now I see the logic of that specific ACB calculation.

Thanks again for your reply.
Jim August 30, 2016 at 3:03 pm

Just came across this article and wanted a clarification on options. If I sold shares to create a loss but immediately bought some call options on stock to continue to have exposure to it, then sold the options and bought the stock back 30+ days later does this still trigger a loss or with the exposure to the options would the CRA consider this a superficial loss?
AdjustedCostBase.ca August 30, 2016 at 7:21 pm

Jim,

That would depend on the timing of when you sold the options. If you sell the options within 30 days after you sold the shares, then the loss on the sale of the shares would be a superficial loss. If you sell the options after 30 days, then the loss on the sale of the shares would not be a superficial loss.

CORRECTION: If you sell the options within 30 days after you sold the shares, then there would be no superficial loss. If you sell the options after 30 days, however, there would be a superficial loss since you would still own the right to buy shares 30 days after the sale of the underlying shares.
Maxx December 7, 2016 at 4:48 pm

I had some shares that were below purchase price. I transferred those shares from a personal account to a joint account with my spouse. I assume I triggered a superficial loss?
Now when we do dispose of those shares is the adjusted cost base only on my 50% of the shares or the entire amount of the shares? The shares have risen considerably and would result in a capital gain from both the original price I paid and the transfer price.
Example purchased $10, transferred at $5, sold joint at $20.
thank you for your assistance
AdjustedCostBase.ca December 7, 2016 at 9:01 pm

Maxx,

I believe the superficial loss rule would be triggered in that scenario. The superficial loss can be added to the ACB, resulting in a capital gain of $20/share when the shares are sold.
Robert Skelton December 12, 2016 at 12:10 am

Your response to Jim (Aug 30, 2016)
“If you sell the options within 30 days after you sold the shares, then the loss on the sale of the shares would be a superficial loss. If you sell the options after 30 days, then the loss on the sale of the shares would not be a superficial loss.”
seems to conflict with what you told Medalic in Dec 2015: “The superficial loss rule can be triggered by a sale of the underlying shares if you own call options at the end of the superficial loss period (since call options constitute the right to acquire the underlying shares).”
I am thinking the original (Dec 15) response is correct.
Would you please clarify.
Thanks

Bob
AdjustedCostBase.ca December 14, 2016 at 1:12 am

Bob,

Thank you for reporting the error. You’re right and I have corrected the comment above.
ralph nicholson February 6, 2017 at 9:18 pm

In regard to EXAMPLE#1- It appears that the STL rule should not apply since the purchase of the shares were not made within the 61 day window. The second condition obviously has met met – although the first condition, that the shares need to be bought within the 61 day period does not seem to have been met since the buy date was 11 months previous to the sell date.
Can you please explain why?
THX
R Nicholson..
AdjustedCostBase.ca February 6, 2017 at 9:24 pm

Ralph,

The first condition for the superficial loss rule is satisfied in Example #1 because a purchase occurs on 2014-11-04, one day following the disposition on 2014-11-03.
Jose March 5, 2017 at 11:11 pm

Hi,

What about the ACB of USD? Let’s say I have 10,000 USD sitting in my unregistered account, with ACB of 14,000 CAD (for simplicity, those are the only USD that I own in all my accounts).

I transfer the whole 10,000 USD to my TFSA account @ 1.32 exchange rate (so my 10,000 USD x 1.32 = 13200 ==> my capital loss is 800 CAD if I am doing a deemed sell/acquisition).

Is this a superficial loss, and thus denied since the “Buy” is happening in the TFSA account?

Thanks.
Jose March 5, 2017 at 11:12 pm

Please note that for my example I am transferring the USD “in kind” (I am not selling them to CAD, trasnfering the CAD to the TFSA account, and buying back the USD).
Jose March 5, 2017 at 11:34 pm

Sorry – I missed something. Let’s assume in my example that I hold 20,000 USD with ACB = 28,000 CAD.

I transfer 10,000 USD to my TFSA account @ 1.32 exchange rate. The questions are:
1. Is there a capital loss (of $800 CAD)?
2. What is the resulting ACB of the 10,000 USD that are kept outside the registered account (14,000 CAD, 14,800 CAD?).

Thanks.

PS: sorry for the multiposting.
AdjustedCostBase.ca March 6, 2017 at 5:42 pm

Jose,

Yes, I believe the superficial loss rule would apply, regardless of whether or not the transfer of USD is in kind. If you hold USD$20,000 with an ACB of $28,000 and transfer USD$10,000, then the resulting ACB of the remaining USD$10,000 would be $14,000.
Jose March 6, 2017 at 5:50 pm

Thanks. So… how do you avoid this from happening?

1. Sell/exchange the USD 10,000 in the non-registered account so you have CAD 14,000.
2. Transfer the CAD 14,000 to the TFSA account.
3. Wait 31 days and exchange the CAD 14,000 for whatever amount of USD you get at that time.
a) This operation wouldn’t have any impact in the ACB of the USD (in the non-registered account).

However, what happens if you get dividends from US stocks (in the held registered and/or the non registered account) or paid wages (I am an independent professional, and I do get paid in USD) before the 31 days? Seems to me that my capital losses in USD$ will keep getting deferred forever (I get dividends and salary in USD every month, which I guess it is like a “deemed acquisition” of USD, so no matter when I sell my USD I will always have a “buy” of USD inside the 31 days window).

I was looking in your blog but didn’t see an entry specially dedicated to this. I’d humbly suggest one – I think it is complex enough and I am sure I am not alone out there.

Thank you so much.
AdjustedCostBase.ca March 6, 2017 at 6:00 pm

Jose,

Yes, you could circumvent the superficially loss rule by converting the USD to CAD, transferring the proceeds, and waiting 31 days to convert CAD to USD in your TFSA.

Since superficial losses are deferred as opposed to lost forever (unless you transfer the money into a registered account) then the deferred losses may eventually allow you to offset capital gains in USD depending on how the exchange rate fluctuates in the future.

Also, triggering the superficial loss rule does not necessarily mean that the full capital loss is denied. In the scenarios you’ve described it seems likely that you would be able to at least claim part of the loss:

http://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

There is also some further information about foreign currency cash here in case you didn’t see it:

http://www.adjustedcostbase.ca/blog/calculating-adjusted-cost-base-for-foreign-currency-cash/
Jose March 6, 2017 at 6:01 pm

Thank you!
Ed April 6, 2017 at 10:38 pm

Hi.

I am currently an employee of a US company in Canada. I get Restricted Stock Units (RSU’s) from the company. I previously had stock from the company. Recently in 2011, the company started selling some shares when the RSU vested in order to provide the CRA with the tax for the RSU’s. Since I had previous stock which were much higher priced my ACB was much higher than the RSU’s I received. This lead to the stock sale for tax purposes being a capital loss.

The question is since the stock sale was involuntary and was done by the company and it was done either on the same day/next day that the stock was received, in this case is it considered a superficial loss?
Can the RSU’s be considered an option so it can be claimed as a capital loss? Also since the sale was done in my account and was involuntary, since I am not a related to the company except as an employee, can it be considered not an affiliated relationship so again I can claim it as a capital loss.

Thanks in advance.
Adrian April 20, 2017 at 7:18 pm

So if I understand this correctly – it’s only a superficial loss if you sell SOME shares within the time period.

If you completely cash out and sell everything – there is no superficial loss. However – you need to wait 30-31 days to buy back in, otherwise it would be a superficial loss then.

Day 1: Buy
Day 2: Sell partial
= superficial

Day 1: Buy
Day 2: Sell everything
= capital loss

Wasn’t even aware of this. Now my tax bill is a lot higher. Expensive lesson 🙁
AdjustedCostBase.ca April 21, 2017 at 11:30 am

Adrian,

The first scenario would result in a superficial loss, unless the rest of the shares are sold within the superficial loss period. Also note that likely only part of the loss would be considered a superficial loss.
Adrian April 21, 2017 at 3:22 pm

I’m not understanding then. I thought that unless you fully sell out of all your shares – then the superficial rules apply (provided you buy/sell in the timeframe).

If I purchased shares and sell a portion a week later – does that not qualify since I bought:

1) Within the 30 days prior
2) Did not fully cash out?

I’ve gone over the article again and again.
Rob April 21, 2017 at 4:21 pm

Adrian,

You are right. But note you need to sell all your shares IN ALL YOUR ACCOUNTS (including non-registered, RRSP, TFSA etc) by the END of the period.

Example 1

Day 1. Bought shares of Security X
Day 2: Sold Shares of Security X at a loss
Day 3: Bought shares back
Day 32: You still own the shares of Security X.

Superficial loss rule applies. You cannot claim the loss.

Example 2

Day 1. Bought shares of Security X
Day 2: Sold Shares of Security X at a loss
Day 3: Bought shares back
Day 28 You sell all your shares of Security X for a GAIN!! You are RICH!!
Day 32 You have NOT bought back any shares of Security X. You do not own any shares of Security X in ANY of your accounts including RRSP, TFSA etc.

You can claim the superficial loss for the day 2 trade since you do NOT own any shares at the end of the 30 day period after the sale. (In this case, you would also have to claim the capital gain on Day 28!)
Rob April 21, 2017 at 4:23 pm

OOPs. I should have said, “You can claim the capital loss for the day 2 trade….”
Adrian April 23, 2017 at 1:16 pm

Got it thanks. So to recap very quickly…

If you sell for a loss within < 30 days of buying, all shares need to be sold in all accounts so that rule #2 isn't satisfied (still owning property).

Once 30-31 days has passed after a buy order, you can sell partial shares at a loss without worry of superficial losses.

So in my case….

Transactions:
———-
BUY
BUY
BUY
BUY
BUY
etc… (lots of previous buys to this point)

Then…

2/22/2017
———-
Buy (32,615)
Total ACB = $13,218.19

3/9/2017
———
Sell (32,000)
Loss = (-$407.45)
Total ACB = $10,740.73

3/10/2017
———
Sell (60,000)
Loss = (-$1,055.23)
Total ACB =$6,095.49

I still owned shares 30 days after the initial sell… so my question is then…

1) Would I add the loss of -$407.45 to the Total ACB on 2/22/2017?
2) Then I would add the loss of -$1,055.23 to the next Total ACB?

Which means it should now be:

2/22/2017 = $13,218.19 (Total ACB)
3/9/2017 = $13,625.64 (Total ACB)
3/10/2017 = $14,680.87 (Total ACB)
Rob April 23, 2017 at 5:34 pm

I know understand your situation. You have a number of partial dispositions of shares.

There are two ways to handle this situation.

1) Fully deny the superficial loss. If you do that, it is my understanding that you would add the superficial losses to your ACB; OR,

2) Partially deny the superficial loss. Generally you can only do this if the number of shares remaining after the sale is less than the number of shares sold.

The formula you use is as follows:

Superficial Loss = (min(S, P, B) / S) x (Total Capital Loss)

where S is the number of shares sold, P is the total number of shares acquired during the 61-day superficial loss period, and B is the number of shares remaining at the end of the superficial loss period. Note that min(S, P, B) indicates the minimum value among S, P and B.

e.g. The total capital loss= $80
Superficial Loss Calculated = $20
THAN MEANS YOU CAN CLAIM A CAPITAL LOSS OF $60. (i.e. $80-$20)

For more details, see
https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

You have not provided enough details to determine where option 2) is a real option for you.

My understanding is that you can always use option 1).

In both cases, the superficial capital loss(es) you calculate is not permanently denied but just deferred (assuming the transactions occurred in a non-registered account).

P.S, To verify your ACB calculations, I would just use this website. It is very easy to use.
Adrian April 23, 2017 at 6:33 pm

Very detailed – thanks! I went ahead and used the tool.

This is the result: http://image.prntscr.com/image/1c91bdf2aa9248f6a35e9d4c6a16a351.png

I left the field blank for “Adjusted Cost Base” based on your response to someone else on the other page. By leaving it blank – this just defers and adds it onto the existing ACB correct? if I was to enter a number in this field, it would calculate percentage of capital losses allowed. I rather defer and keep it simple.
AdjustedCostBase.ca April 23, 2017 at 8:59 pm

Adrian,

That looks correct. As Rob mentioned above you may be able to claim part of the loss, however, you may choose to fully defer the loss for simplicity.
Rob April 23, 2017 at 9:08 pm

Adrian,

The screenshot looks right.

But I do not see a field called “Adjusted Cost Base”.

There is a field called “Adjusted Capital Loss”. If you were going to defer the whole superficial capital loss, you would enter 0 into that field. You would also tick “Add Reduction in Capital Loss to ACB”. Looks like that is what you did.

As noted above, sometimes you can optionally claim a partial capital loss depending on the circumstances. (e.g. typically if the number of shares remaining after the sale is less than the number of shares sold). It does not look like you can claim a partial capital loss in your case.

But if you could claim a partial capita loss, you would use his formula:

Superficial Loss = (min(S, P, B) / S) x (Total Capital Loss)

where S is the number of shares sold, P is the total number of shares acquired during the 61-day superficial loss period, and B is the number of shares remaining at the end of the superficial loss period. Note that min(S, P, B) indicates the minimum value among S, P and B.

You would then calculate the allowable capital loss as follows:
Allowable Capital Loss = Total Loss – Superficial Loss

Then you would enter the value for “Allowable Capital Loss” into the field of the website called “Adjusted Capital Loss” and still tick “Add Reduction in Capital Loss to ACB”.

Hope this helps.
Rob April 23, 2017 at 9:58 pm

I hope someone can answer this question relating to superficial loss rule and RRSP’s

e.g. May 1 — Buy 900 shares of stock ABC
May 2 — Buy 100 shares of stock ABC
May 5 — 100 shares of stock ABC was bought in a RRSP!!
May 10 — Sell 1000 shares of stock ABC for a loss of $1000

31 days after the original sale, 100 shares of stock ABC is still held in the RRSP. None are held in the non-registered account.

The superficial loss rule does apply.

Is the entire capital loss of $1,000 permanently denied? Or is just 10% of the loss permanently denied since one only bought 100 sharers in the RRSP.
Andy April 23, 2017 at 10:29 pm

Adjustedcostbase.ca author,
In your response to Adrian the other day you wrote, “The first scenario would result in a capital loss…”

Did you mean to write “superficial loss” instead of “capital loss”?
Rob April 24, 2017 at 8:06 am

Andy, I agree with you. I am sure the Adjustedcostbase.ca author really meant to say “superficial loss”. In my view, the first scenario as described would have resulted in a superficial loss since he never sold all the shares. (ie. he still held shares at the end of the superficial loss period).

But as noted, it is possible that only part of the loss was superficial and the other part of the loss was a real capital loss that could be claimed on your taxes. (It would depend on the circumstances).

See
https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/
AdjustedCostBase.ca April 24, 2017 at 5:15 pm

Rob,

I believe that only 10% of the loss would be considered a superficial loss:

Superficial Loss = (min(S, P, B) / S) x (Total Loss)

S is 1,000, P is 1,100 and B = 100, resulting in 10% of the loss being a superficial loss.
AdjustedCostBase.ca April 24, 2017 at 5:17 pm

Thanks, Andy. I’ve updated the response above.
Rob April 25, 2017 at 8:49 pm

Thanks AdjustedCostBase.ca! That makes a lot of sense.

But I found out that my friend’s situation is a little more complicated. I do hope you can help.

e.g. Jan 1 — Bought 700 shares of stock ABC in RRSP
Jan 1 — Buy 500 shares of stock ABC in Regular Account
May 2 — Buy 500 shares of stock ABC in Regular Account
May 5 — Buy 700 shares of stock ABC in RRSP!!
May 10 — Sell 1000 shares of stock ABC in Regular Account for a loss of $1000

31 days after the original sale of 1000 shares, 1400 shares of stock ABC is still held in the RRSP. None are held in the regular non-registered account.

The superficial loss rule does apply. Since 1000 shares were sold at a loss, 1200 shares were bought during the superficial loss period (between the two accounts) and 1400 shares remain in the RRSP, I suspect one cannot claim any capital loss. (The number of shares purchased exceeded the number of shares sold).

The real question is how does one allocate the Superficial losses between the two accounts (Regular and RRSP). Given the circumstances, I assume that one can allocate some of the superficial looses to the regular account in order to increases the ACB of any subsequent purchases in the regular Account.

Since 1200 shares were purchased between the two accounts, does one allocate the losses as follows:

Superficial Losses allocated to RRSP = shares bought in RRSP / (Shares bought in RRSP and Shares bought in Regular Account) x total capital Loss

i.e. Superficial Losses Allocated to RRSP = 700/(700+500) x $1000 = $583.33

And therefore the Superficial Loss allocated to Regular Account would be = $1000-583.33 = $416.67

Does this make sense?

Also please comment on how one could use any superficial losses allocated to the regular account.
I assume one would have to make a subsequent purchase of stock ABC at ANY time in the future. Then would could add the superficial losses to the Adjusted Cost Base (ACB) of the purchase. Is that right?
Rob April 25, 2017 at 9:47 pm

Alternatively, you just use the formula:

Superficial Loss in RRSP = min (1000, 700, 1400) / 1000 x $1000 capital loss = $700

where 1000 is the number of shares sold in regular account, 700 is the number of shares bought in RRSP and 1400 is the number of shares remaining in all accounts (ie. 1400 in RRSP).

I think one just ignores the number of shares bought in regular account during the superficial period since all the shares are sold in the regular account by the end of the period.

Than means the Capital Loss in the Regular account that could be claimed = $1000-700 = $300

This is simpler. So it is probably the right way. Any thoughts?
AdjustedCostBase.ca April 26, 2017 at 4:41 pm

Rob,

I believe you’re correct that the superficial loss rule would apply in that scenario and that $700 of the $1,000 loss would be considered a superficial loss, resulting in an allowable capital loss of $300.

But I’m not sure that the superficial loss can be added to shares purchased in the future in a non-registered account. According to IT-456R:

http://www.cra-arc.gc.ca/E/pub/tp/it456r/it456r-e.html

“If the taxpayer realizes a capital loss in such circumstances, subsection 85(4) deems the loss to be nil and, together with paragraph 53(1)(f.2), provides for the loss to be added to the ACB of the taxpayer’s remaining shares.”

“Paragraph 53(l)(f) permits the owner of the substituted property to add the amount of a superficial loss in determining the owner’s ACB of that substituted property.”

If you interpret that statement literally then the superficial loss would be added to ACB of the shares remaining in the registered account, not future shares purchased in the non-registered account. But ACB is not applicable to shares in a registered account, so increasing this ACB is of no value. So it would seem that the capital loss is permanently denied. This is similar to the scenario where a capital loss is permanently denied when shares are transferred in-kind from a non-registered account to a registered account.
Rob April 27, 2017 at 12:43 pm

Thanks. After further review, I agree that it is unlikely that any superficial loss can be added to the an ACB of zero for subsequent purchases of shares. My first suggested approach does look like it will work.

But I do think my second alternative approach is right. At the end of the superficial loss period, I have reacquired 700 shares albeit in the RRSP and sold 1000 shares. The superficial loss in the RRSP is $700 as calculated as follows:

Superficial Loss in RRSP = min (1000, 700, 1400) / 1000 x $1000 total capital loss = $700

This superficial loss is permanently denied since the superficial loss is added to the ACB of the shares in the RRSP. And as you pointed out ACB’s are meaningless in RRSPs;

The superficial loss in the Regular account = min (1000, 300, 0) x $1000 total capital loss = 0

So it looks like to me that one could claim a capital loss of $300 in the regular account as follows:

Capital Loss to be claimed in Regular Account = Total Capital loss – Superficial loss in RRSP – superficial loss in regular account

Capital loss to be claimed = $1000 – $700 – $0 = $300

Make sense?
AdjustedCostBase.ca April 27, 2017 at 2:37 pm

Rob,

That looks correct to me – a permanently denied superficial loss of $700 and an allowable capital loss of $300.

I believe the formula should be:

min (1000, 1200, 700) / 1000 x $1000

but the end result is the same.
Vito May 10, 2017 at 3:22 pm

Hi,

Do you know if performing a Norbert’s Gambit would trigger the superficial loss rule?

For example,
Let’s say I buy DLR.TO (ETF holding CAD currency) TODAY, and then immediately after purchasing the DLR.TO I contact the broker and have them journal the shares over to DLR.U.TO (ETF holding USD currency) then after waiting T+3 days for the trade to settle, I sell DLR.U.TO to gain US cash. This is within 30 days, but it is a different ETF since it holds different currency, so I assume this will not trigger a superficial loss rule, but is this correct?
AdjustedCostBase.ca May 15, 2017 at 5:24 pm

Vito,

Journaling DLR to DLR.U should not trigger a deemed disposition. They are the same security (with the same CUSIP).
Eric Palait June 23, 2017 at 7:21 pm

Hello! I need your help…

basically I made money this year trading, lost all of it, repurchased the same shares (company) within 30 days and made all the money back….now im worried i’ll be double taxed on the money I lost then made back? how would that work? appreciate a response!
Eric Palait June 23, 2017 at 7:27 pm

also say I bought stock and made $1000, sold then rebought the next day and lost the $1000, then rebought again two days later but only made $200 back. what would happen in that situation?
AdjustedCostBase.ca June 24, 2017 at 9:15 pm

Eric,

Assuming all of these transactions occurred within the same year, it would not make any difference whether the $1,000 capital loss is considered a superficial loss or not. Since a superficial loss can be re-added back to the ACB of repurchased shares, the total capital gain/loss would be the same. In your example, the total capital gain would be $200 either way ($1,000 – $1,000 + $200) assuming all of these transactions occur within the same year.
Eric Palait June 25, 2017 at 5:25 pm

ok interesting. now what if you are dealing with an odd number of shares in each transaction? say the superficial loss involved 100 shares, and when you rebought the same stock a few days later you purchased only 70 shares?

let me make a guess here that the ONLY negative aspect regarding a superficial loss is that that loss, unlike a regular capital loss, cannot be carried forward to future years? is that basicially it in a nutshell? my primary concern here is paying capital gains tax on money that I lost via a superficial loss but it looks like that does not happen. I really appreciate the feedback!

I also have one more question that’s unrelated. If you are a day trader and your capital gains are taxed as income by the CRA, ive heard the superficial loss rule does not apply? meaning all they care about is your net income for the year regardless of superficial losses meaning all losses are treated the same? A loss is a loss under the income system unlike the capital gains/losses system?

again thanks!
Eric Palait June 26, 2017 at 1:40 am

Oh and one thing I forgot to ask…does it matter if you have 2 superficial losses in a row? or do they just keep getting pushed forward via ACB. thanks again.
AdjustedCostBase.ca June 27, 2017 at 11:47 pm

Eric,

Information on handling partial superficial losses is available here:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

A superficial loss means that the loss is denied. In certain circumstances, the denied loss can be re-added back to the ACB of repurchased shares, which has the effect of reducing the capital gain (or increasing the capital loss) when the shares are eventually sold in a non-superficial loss situation.

The superficial loss rule only applies for transactions treated on capital account, not on income account.

Yes, it’s possible to have multiple subsequent superficial losses.
Brad October 7, 2017 at 2:21 pm

Hello

I have a current loss in my broker cash account. I want to transfer this stock to my TFSA and keep the stock. The broker said they can do the transfer without selling it. But a disposition would occur and it would be reported to the CRA. Can I use this as a capital loss even though I am not selling it but transferring it? Can I use this as a capital loss if I transfer it from a non registered account to a registered account? I already have this stock in my TFSA.
AdjustedCostBase.ca Post authorOctober 8, 2017 at 10:05 am

Brad,

First, that seems highly unusual that your brokerage would not allow you to transfer stocks in-kind. You may want to double check with them about this.

If the stock is held in a TFSA, then you do not need to worry about the superficial loss rule. Capital gains and losses are not incurred in registered account.
Brad October 8, 2017 at 1:21 pm

Thanks, the broker told me I can sell in my cash account, transfer the $ to my TFSA and then re-buy it in my TFSA after 30 days ($18 total cost) or they can transfer it instantly over the phone ($25 cost).

But to clarify if I move this stock (either in-kind or what they suggest for $25) from the cash account to a TFSA then I am NOT allowed to claim any loss because its ending up in registered account? Or can I claim the loss?

Its sounds better that I just sell the stock, collect the capital loss and then re-buy in my TFSA 30 days later?
AdjustedCostBase.ca Post authorOctober 8, 2017 at 5:00 pm

Brad,

Sorry I misunderstood and assumed you were talking about transfer a stock from a registered account into a non-registered account.

If you transfer a stock into a TFSA or other registered account in kind at a loss, then that loss will be a superficial loss.

To avoid the capital loss being deemed a superficial loss, you would need to sell first, then wait at least 30 days, then repurchase.
moneyhelp October 8, 2017 at 9:34 pm

Yes, my understanding is that if you transfer stocks in kind from a non-registered account to a registered account it will be a deemed disposition and if there are capital gains, then there will be tax owing to the CRA. However, if transferring the stocks in kind and generating a capital loss, you cannot claim that loss. If this is the scenario for you, it may be best to sell the stocks, take the loss and then be able to claim the loss when filing taxes, then with the proceeds re-purhcase the same security after 30 days time to avoid the superficial loss rule.

Depending on what stock you are buying, there are creative ways around the superficial loss rule. For example, I’ve read that investors who are buying individual stocks, say for example Apple, if they lose in value and decide to sell to trigger a capital loss, but you’re still interested in apple stock because you believe it will go up in the future, you can immediately re-purchase (within 30 days of selling the  shares) a mutual fund or ETF that holds Apple stock as a heavy weighting and this should not trigger the superficial loss rule. Kind of cool, but I’d rather just wait the 30 days and re-buy the same stock.

Thoughts ACB.ca?
AdjustedCostBase.ca Post authorOctober 11, 2017 at 8:43 pm

Moneyhelp,

Yes that’s correct – you can repurchase an ETF that has similar holdings without triggering the superficial loss rule (although the superficial loss rule still applies when you sell an ETF and repurchase a different ETF that tracks the same index).

It will most likely be difficult to find an ETF that holds such a large proportion of the stock you sold. For example, Apple is the largest holding of the PowerShares QQQ ETF, but only amounts to 12% of total assets. But in such a case holding the ETF may be acceptable if the other holdings have a high degree of correlation to the stock you’ve sold.
moneyhelp October 11, 2017 at 9:23 pm

Interesting, however, I’ve also read that the CRA will not accept the capital loss claim even if your spouse/common law buys the same same stock within 30 days of the other spouse/common law selling the same stock.

How is this fair? I just mean, perhaps there may differing opinions of how the company stock will fair in the immediate future. Is it unrealistic to assume there could be differing of opinions within 30 days? And, if this is correct, where the above is not acceptable with the CRA, how about doing the same scenario but with a trusted friend or sibling, etc? Does it only apply to people’s significant other?

Cheers.
AdjustedCostBase.ca Post authorOctober 12, 2017 at 3:28 pm

Moneyhelp,

The superficial loss rule applies when the repurchase is done by an “affiliated person”, which the CRA says includes the following examples:

https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/capital-losses-deductions/what-a-superficial-loss/affiliated-persons.html

”
– you and your spouse or common-law partner;
– you and a corporation that is controlled by you or your spouse or common-law partner;
– a partnership and a majority interest partner of the partnership; and
– after March 22, 2004, a trust and its majority interest beneficiary (generally, a beneficiary who enjoys a majority of the trust income or capital) or one who is affiliated with such a beneficiary.
”

I suppose the rationale is that in many cases a person would be indifferent between owning an asset themelves or their spouse owning that same asset.
Bob December 2, 2017 at 1:40 am

Ok,
So I sold 180,000 shares of a company at $2.38 originally bought at $2.60.
Then having sellers remorse within 30 days I bought back 100,000 the shares at $2.35. The shares are now at $3.80 which is good but what is my ACB going forward? I have no plans to sell the shares this year.
Leaving out commissions to simplify….
Original cost of shares was $468,000 ACB of $2.60
Sale of shares resulted in $428,400 at a price of $2.38
Resulting in a loss of $39,600
Bought back 100,000 shares for $235,000 within 30 days.
So I’m assuming the loss on 100,000 shares would be denied meaning 100,000 x $.22 = $22,000
This is where I get confused. This denied loss somehow works into my new ACB of $235,000 or $2.35 a share. It gets added in? IE my new average cost base on that 100,000 shares is $257,000 or $2.57 a share?
AdjustedCostBase.ca Post authorDecember 3, 2017 at 6:06 pm

Bob,

If you apply the superficial loss rule to the entire capital loss, then the full $39,600 would be added to the ACB of the repurchased shares, resulting in a total ACB of $274,600.

But you have the option to claim part of the capital loss, as described here:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

Under these rules, the superficial loss would be ($39,600 x (100,000 / 180,000)) = $22,000. This would be added back to the ACB of the repurchased shares, resulting in a total ACB of $257,000 for the 100,000 repurchased shares, and you can claim an immediate capital loss for the remainder of $17,600.
Bob December 4, 2017 at 1:48 am

Ok thanks!
It sounds like my numbers were generally correct but I may have gotten to the in a round about way. I’ll claim the partial capital loss to get it on the books moving forward and the new ACB.
Another quick question about another stock if you wouldn’t mind….sorry if this is getting annoying but thank you greatly for your help and this site.
For the period from August 1 to Aug 3 – I bought 25,000 shares of stock W at an average of 2.22
On Aug 22th I sold 10,000 of these shares at $2.45 for a profit of $2300 leaving me with 15000 shares.
On Aug 30th I bought another 5000 shares at $2.14 bringing me back up to 20,000. One of my questions is….at that point is my average cost base just based on the original 15000 ACB/price plus the new cost/price of the new 5000 shares? IE the fact that previously I sold 10,000 doesn’t even work into the equation as I sold them at a profit?
So at that point on August 30th I had 20,000 shares at whatever ACB is appropriate.
Then on October 24th I sold those 20,000 shares at $2.10 creating a loss based on whatever ACB was appropriate for the 20,000 shares.
To further complicate the sitution I bought back 5000 shares a week later at $2.00 creating a superficial loss on 5000 of the shares sold on Oct 24th.
I guess at this point I understand everything in this trading mess other than the question about what my ACB would be on the 20,000 I ended up with on Aug 30th after selling 10,000 of the 25,000 at a profit and then buying back 5000 at a lower price.
AdjustedCostBase.ca Post authorDecember 4, 2017 at 6:22 pm

Bob,

After selling shares your ACB per share remains the same after selling shares, but your total ACB is reduced. But when you repurchase shares, your total ACB and ACB per share will be based on the proportion of shares before and after the repurchase, which is affected by the number of shares previously sold, so the number of shares previously sold does factor into ACB calculations.

You can try inputting these transactions into AdjustedCostBase.ca to see how the ACB changes during this sequence of transactions:

This is after reducing the capital loss on Oct. 24 from $2,000 to $1,500 due to the partial superficial loss.
Bob December 7, 2017 at 9:14 pm

Thanks again
Steve February 3, 2018 at 4:14 pm

Hi and thanks for this great information and website. Do you (or anyone) know of some stand alone software that will track ACB and Superficial losses for Windows or Mac?
AdjustedCostBase.ca Post authorFebruary 3, 2018 at 8:58 pm

Steve,

AdjustedCostBase.ca can help identify cases where the superficial loss rule applies. More information on this feature is available here:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-with-adjusted-cost-base-ca/
Steve February 4, 2018 at 7:32 pm

Yep saw that. I was hoping for something to use offline (like a PC app or something) in case your great site goes away in the future….something like Quicken. But I don’t think it does that.
Jon February 14, 2018 at 11:47 am

Hello ACB,

I own $100k of a security which I purchased early last year ($32.50/share). On 29 Jan 2018, I purchased another $6k of the same security ($33/share). Today (14 Feb 2018), I have a net $5k loss on my entire position (now worth $31/share). I want to sell today my entire position to harvest the capital loss of $5k. I don’t intend to re-purchase the same security within 30 calendar days of the settlement date. The hiccup is that I purchased that $6k of the same security within the 30 calendar days before the sale settlement date (if I were to sell today).

Would you be able to help me in figure out whether in my particular case, the superficial loss applies, and if so, how to calculate it? Thanks.
AdjustedCostBase.ca Post authorFebruary 14, 2018 at 3:12 pm

Jon,

No, the superficial loss rule would not apply in that situation. One of the conditions is that you still hold the same security 30 days after the sale, which is not the case if you’ve sold the entire position and don’t make any more purchases within 30 days after the sale.
moneyhelp February 14, 2018 at 3:39 pm

Hi ACB,

As per Jon’s question, I would have thought the SLR would apply in this situation provided he sells his entire position today.

Let me explain and please correct me where my logic may be incorrect.

Scenario 1:
He bought $6K worth of securities on January 29, 2018 and he would like to sell his entire position TODAY which would be February 14th, 2018, which is LESS than the 30 days required to wait to qualify for a claimed capital loss, therefore triggering the SLR.

OR

Scenario 2:
Does the SLR only apply if he bought the securities on Jan/29/2018 and sold it today February 14th, 2018 and then re-purcahse again before March 14th, 2018 (ie. within 30 days of the February sale)? If this is the case, then does that mean, the SLR only applies on the RE-PURCHASING of the same security?

Personally I think the first scenario is correct, but maybe they’re both wrong, I don’t know, my brain is hurting. 😛

Thanks.
AdjustedCostBase.ca Post authorFebruary 14, 2018 at 3:43 pm

Moneyhelp,

The superficial loss rule would not apply in Scenario 1 because no shares are held on March 16th. In Scenario 2, the superficial loss rule would apply.
moneyhelp February 14, 2018 at 4:08 pm

Ok, so let me see if I understand this, so please bare with me.

In scenario 2, the SLR would apply, if the investor re-purhcased (March 16th) the same security within 30 days of the previous sale (February 14th). Correct?

In scenario 1, however, you mention no shares are held on March 16th, so what if the investor kept some of the security? Meaning he did not sell his entire position, only some, does the SLR get triggered?

See now I’m thinking, I can buy Monday, and sell Tuesday (next day) if I realize a capital loss and this will NOT trigger the SLR, however, if I re-purcahse on Wednesday (which means within 30 days of the last sale) then it would trigger the SLR?
AdjustedCostBase.ca Post authorFebruary 15, 2018 at 4:40 pm

Moneyhelps,

Your first point is correct.

If the entire position isn’t sold, then the superficial loss rule would apply because some shares are still owned at the end of the period. Note that special rules can apply for partial sales:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

The key to the superficial loss rule is that both conditions must be satisfied:

– A purchase occurs within +/- 30 days of the sale
– Shares are still held 30 days following the sale
moneyhelp February 16, 2018 at 2:30 am

Thank you, I will looksie at the link, much appreciated!
Adrian March 20, 2018 at 5:54 pm

Any idea how to enter a superficial loss on Turbotax? I just made my ACB/outlay equal the proceed amount so it reads $0.
AdjustedCostBase.ca Post authorMarch 22, 2018 at 12:41 pm

Adrian,

I don’t think the details for capital gains are transmitted to the CRA when filing your return electronically – only the total amount (although you should of course maintain your own detailed records in case they request further information from you). As such it is probably OK to exclude superficial losses. Just ensure that the total capital gains reported by Turbotax match your records.

Note that Schedule 3 is not seem designed well to handle superficial losses. The annual reports generated by AdjustedCostBase.ca ( https://www.adjustedcostbase.ca/blog/annual-capital-gains-pdf-reports/ ) exclude sales where the entire loss is superficial by default. If you choose to include superficial losses then the value in the adjusted cost base column will be adjusted to provide the correct capital gains value.
Leslie April 7, 2018 at 11:51 pm

If SLR applies to some sold shares, is that sell still reported on my tax form? I am wondering if I am supposed to report the #shares sold, even if I am not claiming the loss (and I assume that I don’t report the cost of commission on that sell either)?
AdjustedCostBase.ca Post authorApril 8, 2018 at 7:48 pm

Leslie,

The CRA isn’t clear about whether they want transactions involving superficial losses to be reported on Schedule 3, and the form doesn’t seem well designed to accommodate superficial losses. In cases where the superficial loss rule reduces a capital loss to zero, I would suggest not reporting the loss as it could cause confusion. If you would like to still report the loss then the adjusted cost base can be changed such that it equals the proceeds of disposition less the commission.
mike September 28, 2018 at 7:20 pm

Does the Superficial Loss Rule apply on USD holdings as well or only on stocks?

The case is like this:
– deposit CAD in the brokerage account
– convert CAD to USD
– buy US securities
– CAD appreciates significantly after the purchase of the US securities, during the 2 days settlement period, which would trigger a significant capital loss.

I plan to do another stock purchase in less than 30 days (which would require conversion CAD to USD). As the purchase of US securities triggers a “deemed disposition” of my USD holdings, would CRA consider the capital loss mention previously as being superficial and disallow it?
AdjustedCostBase.ca Post authorOctober 1, 2018 at 2:42 pm

Mike,

The CRA provided some clarification on this last year:

https://taxinterpretations.com/content/476504

“A U.S.-dollar loan owing to an affiliated trust is repaid on its maturity, thereby resulting in an s. 39(2) FX loss to the borrower. The trust promptly relends those U.S.-dollar to the borrower. Is the s. 39(2) loss (which is deemed to be a loss from the disposition of foreign currency) suspended under s. 40(3.4) (or is it a superficial loss under s. 40(2)(g)(i), if the borrower is an individual)?

CRA indicated that the issue here is whether the USDs received by the borrower under the new loan are identical property to the foreign currency that it was deemed to have disposed of under s. 39(2), and noted that under the “property” definition in s. 248(1), “money could constitute property unless a contrary intention is evident” – but then stated:

“However, the CRA’s position is not to consider money to be identical property for the purposes of subparagraph 40(2)(g)(i) or subsections 40(3.3) and (3.4) in a circumstance such as this where a taxpayer sustains a loss under subsection 39(2).”

Therefore, no suspended (or superficial) loss.”

So it seems that it’s the CRA’s position that losses from dispositions of foreign currency are not subject to the superficial loss rule.
jonathan November 13, 2018 at 9:19 pm

I sold some losing stock in a non-registered account which settled on Oct 25th. I immediately contributed the cash proceeds to my TFSA and re-purchased the identical stock the next day, Oct 26th.

It’s now Nov 13th and I just discovered the “superficial loss” rule. It hasn’t been 30 calendar since the original sale.

Q.1) Can I sell the stock in my TFSA tomorrow (Nov 14th) and avoid the superficial loss rule?

Q.2) If Yes to Q1: Given my mistake and my unique circumstance, when can I safely re-purchase the equity within my TFSA?

Thanks!

Jonathan
AdjustedCostBase.ca Post authorNovember 14, 2018 at 10:03 pm

Jonathan,

Yes, the superficial loss rule could apply in that scenario. However, if you were to sell all of your shares within 30 days following Oct. 25th, then the superficial loss rule could be avoided. This is provided that you do not end up owning any shares at the end of the superficial loss period (including any shares of the same stock in any of your registered or non-registered accounts). You would then be able to repurchase the shares once again after the superficial loss period has passed (starting 31 days following Oct. 25th) to avoid the superficial loss rule being applicable to the Oct. 25th disposition.
Nathan December 24, 2018 at 3:24 pm

If I owned an ETF,such as XAW, that is a fund of funds.. Would I be able to harvest capital losses of an XEF position without also selling my XAW position, considering that XAW holds XEF?
Philippe Hajjar February 11, 2019 at 10:09 am

So when transferring in kind to an RRSP account, I forfeit my tax benefit on capital losses but still have to pay taxes for capital gains? What’s the logic behind this double-standard?
AdjustedCostBase.ca Post authorFebruary 11, 2019 at 11:28 am

Philippe,

The idea behind the superficial loss rule is to prevent taxpayers from claiming a capital loss when they haven’t really disposed of the shares for a reasonable amount of time. Without the rule in place, a taxpayer could artificially generate capital losses (and defer taxes) on shares without really giving up the position.

When transferring shares in-kind into an RRSP, consider the following work-arounds to avoid the superficial loss rule:

– Sell the shares in your non-registered account, contribute the cash proceeds to your registered account, and then wait at least 30 days before repurchasing the same shares.

– Contribute shares that have not changed much in value to avoid a capital gain or avoid forfeiting a large capital loss.
Ben February 13, 2019 at 12:26 pm

Hi ACB.ca, I see that you and Rob kind of danced around this scenario a little bit back in Apr 25-27, 2017, but never quite got to what I am looking for.

Can you take a Superficial Loss that originated in a TFSA account and add it on to the ACB of a non-registered account when you buy some shares of the same stock in the non-reg. acct. within 30 days of the TFSA sale date, and continue to hold those non-registered shares past the 30 days?

Simplified example:

MAR 2017 buy 500 shares xyz at $10 in TFSA for $5000.

NOV 5 2017 sell 500 shares xyz at $5 in TFSA for a $2500 loss – but can’t claim since no taxes paid in this account – so it’s kind of a wasted potential in a bad situation. Take the remaining $2500 and buy something else in TFSA and hope to do better this go round.

DEC 3 2017 now buy 500 shares xyz at $5 in Non-Reg Acct for $2500 (within 30 days from sale)

DEC 6 2017 still holding 500 shares xyz – and can now add the TFSA Superficial Loss to this acct’s ACB.(since it is 30+ days past the sale date)

DEC 6 2017 sell/liquidate 500 shares xyz at $5 in Non-Reg Acct for $2500 – vow to never buy that stinker again and now be able to claim the $2500 TFSA loss for this tax season against other capital gains that were made outside of the TFSA.

Is that permitted – to apply the Superficial Loss rules in reverse (reg acct to non-reg acct)?

Thanks,
Ben.
AdjustedCostBase.ca Post authorFebruary 13, 2019 at 12:31 pm

Ben,

There are no capital losses allowed in registered accounts, so therefore there are no superficial losses in registered accounts. You would not be permitted to add a loss from a registered account onto the ACB of the same shares in a non-registered account.
Fred February 26, 2019 at 4:33 pm

I am in a bit of a confusing mess … I have a significant portfolio of funds. I didn’t know about the ACB so didn’t report using the ACB. Fortunately, we don’t earn enough to need to pay taxes (too young for pensions). Now I’ve discovered the requirement for ACB reporting and to put it mildly, it’s as confusing as navigating your way through a maze of twisty passages all alike!

So, I tried calculating ACB cumulatively from day 1 and found that the difference in the values of the funds is so small as to make under a few dollars a year Capital gains and never taking me into sufficient to need to pay taxes.

The problem starts now in 2018 … pensions have started coming in and may take me into paying tax.

Do I go back to 2008 and start calculating ACB from day 1 (with 8 different funds in 3 different non-reistered and 3 registered accounts, this is a huge undertaking! Especially since the first attempt when I determined it wouldn’t take me into paying taxes, I didn’t combine the funds in the assorted accounts. I reckon to take this to an accountant will cost me as much as I have given the hours of data entry!

Any advice?
AdjustedCostBase.ca Post authorMarch 2, 2019 at 1:10 pm

Fred,

You will only need to report capital gains or losses for years in which you’ve sold units (or when they have been deemed to have been disposed of). In order to calculate capital gains correctly, ACB will need to be determined based on your full history of transactions.

Also, you do not need to calculate ACB for anything held in a registered account such as an RRSP or TFSA. These transactions should be excluded when determining ACB.
Fred March 2, 2019 at 2:15 pm

Thanks That’s the conclusion I came to…. I am now plowing my way through data entry, driving myself crazy.

My bank’s calculated ACB has been accurate for the fund I’m currently working on in 1 portfolio, but Trying to merge the data from the same funds in the different portfolios is going to be the real fun part … Thank goodness there are only a few portfolies but many funds. I’m gonna be SO sick of all this paper! All this work with little impact on my previous tax situation. Only now will it have an impact!

I’ve found that with all the monthly buying and selling in the fund, any capital losses will be considered superficial so that part of my question is moot.
Robert March 16, 2019 at 1:39 pm

Hi. I have a superficial loss. How do I report it on Schedule 3? Do I just simply not report the trade at all to CRA? Or do I record the ACB the same as the Proceeds of Disposition? Finally….my Broker account now reports the ACB to me in the year end tax package….do they adjust for Superficial Losses?
AdjustedCostBase.ca Post authorMarch 17, 2019 at 11:56 am

Robert,

The CRA isn’t clear about whether they want transactions involving superficial losses to be reported on Schedule 3. In fact, the form seems inadequately designed to support this case.

I would suggest either not including it (in particular when the superficial loss rule reduces a loss to zero) or changing the adjusted cost base value such that the capital gain or loss value is correct.

The accuracy of reported ACB values will depend on the brokerage. I would image that most do not account for the superficial loss rule. But there are many other reasons why this value can be wrong:

https://www.adjustedcostbase.ca/blog/can-you-rely-on-your-brokerage-for-calculating-adjusted-cost-base-and-capital-gains/
Adrian April 16, 2019 at 10:45 am

If I bought a stock on March 20th – and just sold (partially) now (April 16) for a small loss… that would be superficial, so I add the loss to my ACB.

My question is – if I sell again after April 20th – do I then get to count the loss, or do I have to now wait until May 16th? Does the 30 day window prior to the sell reset whenever a transaction happens?
AdjustedCostBase.ca Post authorApril 16, 2019 at 10:49 am

Adrian,

As long as there are no other purchases within the window 30 days before the sale to 30 days after the sale, the superficial loss rule will not apply. The sale on April 16 does not directly impact this. Also, if your share balance is zero 30 days after the sale, the superficial loss rule will not apply.
Adrian April 16, 2019 at 11:11 am

Sorry, having some trouble following you. Just to be clear now:

1) The partial sale on April 16 (today), is superficial and added to ACB (because I still hold shares).

2) If I sell again partially after April 20 (which is 30+ calendar days since the last buy), I could count the loss, so long as I don’t purchase anything within 30 days after the next sale.

3) The partial sell today – does not impact the sale after April 20th (which is 30+ days since the buy)
Ben April 16, 2019 at 12:01 pm

Yep, you got it Adrian.

1) Yes, but depending on the amount you Purchased from March 17 to May 16 (61 day period), the amount you Sold on April 16, and the Balance amount you still own on May 16, only some of that loss might actually be superficial.
Refer to the formula and blog post here:
Superficial Loss = (min(S, P, B) / S) x (Total Loss)
https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

2) Yes as long as your total Purchase amount = 0 from March 21 to May 20 (61 day period), then the entire amount sold on April 20 would be a normal loss (not superficial). If the Purchase amount = 0 then the Balance of shares’ dollar amount still owned on the 61st day wouldn’t matter either for determining if it was superficial or not.

3) Correct. Each sale date has its own superficial loss determination formula irrespective of other sale dates. Any prior or future share sales will only have an effect on the size of the Balance of shares’ dollar amount remaining on your 61st day for each formula.
AdjustedCostBase.ca Post authorApril 17, 2019 at 10:25 pm

That’s correct, thanks Ben!
Joseph June 1, 2019 at 2:16 pm

Hi, thank you for all those information.

I am a beginner in stocks. I think I made some mistakes related to the superficial loss rule, and I want to make sure what is the impact :

Let’s say within 4 days, everyday I bought 100 shares of X in the morning and sold them all in the afternoon :

Day 1: 50 $ loss
Day 2 : 90 $ gain
Day 3 : 30 $ loss
Day 4 : 20 $ gain
(at the end of day 4, I don’t have any X shares)

Does the superficial loss rule apply?

If yes, can the 50$ loss on Day 1 be used to improve the ACB of Day 2 and thus reduce my gain from (90$-50$) to (40$)?
If yes, how about Day 3? Can it be used to improve the ABC of Day 4? If so, I still have a 30$-20$=10$ loss that can improve my next ACB ?

How about the commission fees? Even if the superficial loss rule denies my capital loss, can I still claim the commission fees paid on each transaction?

Thank you so much.
AdjustedCostBase.ca Post authorJune 4, 2019 at 10:07 am

Joseph,

If all your shares were sold at the end of the fourth day, and you did not repurchase any shares within the next 30 days, then the superficial loss rule would not apply to any of those transactions.

In most cases a superficial loss can be re-added to the ACB of the repurchased shares, which will have the effect of reducing gains in the future.

Commissions should be factored into ACB calculations to effectively reduce proceeds of disposition and increase cost.
Karen Bryden June 16, 2019 at 5:17 pm

I have a question about the “separation” between a TFSA account and a taxable account, in particular, when the same stock is held in both accounts. For example:
I have 550 shares of TRP in my TFSA. They were bought and contributed to my TFSA several months ago during a price dip, and have increased significantly in price.
I want to do a Norbert’s Gambit in my taxable account. In my taxable account I buy 100 shares of TRP on the TSX and sell 100 shares of TRP on the NYSE, incurring a capital loss. I do not make any further trades in TRP for 30 days.
Can I safely ignore my shares of TRP held in my TFSA and claim the capital loss on the 100 shares in my taxable account?
AdjustedCostBase.ca Post authorJune 16, 2019 at 9:47 pm

Karen,

I’m not completely sure of the CRA’s administrative position on this, but strictly speaking the superficial loss rule applies as you still own shares at the end of the superficial loss period in your TFSA. How about using another stock, which you do not own in any account, for Norbert’s Gambit?
Karen Bryden June 17, 2019 at 6:45 am

Further to separation between TFSA and taxable account:
Does this mean that I have to include the 550 shares (in my TFSA) of TRP in my adjusted cost base when calculating my loss on the 100 shares? (which would mean no loss)
If not, can I not argue that both clauses of the superficial tax rule need to apply in order to trigger the rule? I have not purchased TRP within 30 days, so I would argue that it should not apply.

PS: I am aware that it is futile to argue with CRA. This is a conceptual situation.
Karen Bryden June 17, 2019 at 6:54 am

I’m beginning to see the fallacy in my argument. In order to escape the superficial loss rule, it seems to me that I would have to hold the 100 shares in my taxable account for 30 days before selling them to complete the Norbert’s Gambit.
AdjustedCostBase.ca Post authorJune 17, 2019 at 3:20 pm

Karen,

Your transactions and holdings in registered accounts do not directly factor into your ACB calculations for non-registered accounts, but they can affect whether the superficial loss rule applies to sales in your non-registered accounts.

If you are using Norbert’s Gambit with TRP, then presumably you would purchase the same shares within +/- 30 days of the sale (although there is no clear cut definition of identical shares, it seems likely that cross-listed shares would be considered identical in spite of being in different currencies). So the first condition for the superficial loss rule would be satisfied by the Norbert’s Gambit transactions. The second condition for the superficial loss rule would be satisfied if you still hold shares in your TFSA at the end of the superficial loss period.

Yes – if you held the TFP shares in your account for more than 30 days before selling them, then the superficial loss rule would not apply.
Joseph June 22, 2019 at 5:59 pm

Hi,

I just want to emphasize one thing on my previous question :
Let’s say within 4 days, everyday I bought 100 shares of X in the morning and sold them all in the afternoon (HERE, I SOLD 4 TIMES, ONCE PER DAY), does that affect your conclusion?

Day 1: 50 $ loss
Day 2 : 90 $ gain
Day 3 : 30 $ loss
Day 4 : 20 $ gain
(at the end of day 4, I don’t have any X shares)

Does the superficial loss rule apply?

Thank you so much.

AdjustedCostBase.ca Post author
June 4, 2019 at 10:07 am
Joseph,

If all your shares were sold at the end of the fourth day, and you did not repurchase any shares within the next 30 days, then the superficial loss rule would not apply to any of those transactions.

In most cases a superficial loss can be re-added to the ACB of the repurchased shares, which will have the effect of reducing gains in the future.

Commissions should be factored into ACB calculations to effectively reduce proceeds of disposition and increase cost.
AdjustedCostBase.ca Post authorJune 26, 2019 at 11:25 am

Joseph,

If there are no further purchases after day 4 for the following 30 days, then the superficial loss rule would not apply to any of those sales.
Egon August 10, 2019 at 10:30 pm

On CRA’s “What is a superficial loss?” webpage, it’s interesting to note that the definition is somewhat different than Income Tax Act Section 54, in that the webpage includes “right to buy” as part of the first condition of a superficial loss.
https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax-return/completing-a-tax-return/personal-income/line-127-capital-gains/capital-losses-deductions/what-a-superficial-loss.html

Now I assume Section 54 is what matters. If the webpage definition applied, I guess the comments with Tom on December 19-21, 2017, would be different though.
AdjustedCostBase.ca Post authorAugust 11, 2019 at 8:57 pm

Egon,

The CRA’s web page states the following:

“A superficial loss can occur when you dispose of capital property for a loss and both of the following conditions are met:

-You, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called “substituted property”) during the period starting 30 calendar days before the sale and ending 30 calendar days after the sale
-You, or a person affiliated with you, still owns, or has a right to buy, the substituted property 30 calendar days after the sale”

Section 54 of the ITA defines a superficial loss as follows:

“superficial loss of a taxpayer means the taxpayer’s loss from the disposition of a particular property where

(a) during the period that begins 30 days before and ends 30 days after the disposition, the taxpayer or a person affiliated with the taxpayer acquires a property (in this definition referred to as the “substituted property”) that is, or is identical to, the particular property, and

(b) at the end of that period, the taxpayer or a person affiliated with the taxpayer owns or had a right to acquire the substituted property”

also stating:

“for the purpose of this definition,

(i) a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property”

These definitions contradict each other, in my opinion. I suspect the text on the CRA’s site for the first requirement of the superficial loss rule was misworded and in fact should read “You, or a person affiliated with you, buys, or buys a right to buy, the same or identical property”. This would bring it more in line with the ITA and the general spirit of the superficial loss rule. It does not seem correct to me that simply owning call options during the superficial loss periods should trigger the superficial loss rule (in contrast to purchasing call options in the superficial loss period).

That being said, the definition in the ITA does seems to suggest that buying call options within the superficial loss rule would be sufficient to trigger the superficial loss rule (paragraph (i)).
Egon August 19, 2019 at 1:32 am

Thanks for that.

With respect to the identical properties piece of the rule, I’m interested to know if all of the following could be traded freely (e.g. sold at losses, then repurchase an alternate from the below the same day) without watching out for superficial losses:
1. XEG – follows S&P/TSX Capped Energy Index
2. HEU – follows S&P/TSX Capped Energy Index – but with 2x leverage
3. HXE – follows S&P/TSX Capped Energy Index – but with a total return swap structure

You can see all of these listed on the same index page here:
https://ca.spindices.com/indices/equity/sp-tsx-capped-energy-index

Thanks in advance!
Egon August 20, 2019 at 5:40 pm

Also, based on my reading of the rule, I believe the following could be done to avoid taking a superficial loss when selling a security at a loss in a non-registered account, and purchasing the identical security back in a registered account – without materially altering one’s exposure.

1. February 1, 2019
– 1000 shares of XYZ purchased for $100/share in a non-registered account

2. May 1, 2019
– 1000 shares of XYZ purchased for $60/share in a TFSA account
– Ten $60 June 20, 2019 XYZ puts are bought in the non-registered account
– Ten $60 June 20, 2019 XYZ calls are sold in the non-registered account

3. June 20, 2019
– Assuming the market price is no longer exactly $60, 1000 shares of XYZ are automatically sold for $60 in the non-registered account (as either the put will exercise or the call get assigned), and this will generate an allowable capital loss on the sale of shares

The only real risk I see here is if the call option holder manually exercised it by May 31, 2019. If that happened, I guess you might need to reset your position in the non-registered account by re-purchasing the shares that just got sold, rolling over the put option to say July 20, 2019, and writing a new July 20, 2019 call option. That would give you another chance to shed the superficial loss.

Of course, this setup may cost a decent chunk of commission and bid-ask spread losses. And, you would have to stay on top of it for 30 days to watch out for call assignment.

Are there other problems with this approach I’m not thinking through though?
AdjustedCostBase.ca Post authorAugust 23, 2019 at 6:31 pm

Egon,

The CRA considers two different funds tracking the same index to be identical with respect to determining whether the superficial loss rule applies. I would imagine that XEG and HXE would be considered identical, although I’m not sure about HEU. Here is a statement from the CRA on this matter:

https://taxinterpretations.com/cra/severed-letters/2001-0080385

With regards to your second question, I’m not sure that you can avoid the superficial loss rule based on the sale being due to the exercising of an option. The Income Tax Act lists “the expiry of an option” as an exemption for the superficial loss rule, however, I think this is distinct from the case where shares are bought or sold due to the exercising of an option.
Peter December 18, 2019 at 7:51 am

You can rebuy on the 30th day or the 31st?.is the 30th included? If the 30th is a Friday must you wait until Monday or can rebuy Friday. Please answer by Friday lol.
AdjustedCostBase.ca Post authorDecember 23, 2019 at 2:06 pm

Peter,

The superficial loss period includes the day of a sale’s settlement plus the following 30 days, plus the preceding 30 days. So if you purchase shares that settle 31 days after the sale then the superficial loss rule would not apply. Note that it is the settlements date that matter (both for the sale and any purchases) rather than the purchase dates.
Tony January 14, 2020 at 1:13 am

Hi,

How do I treat the following scenario? Is the superficial loss applied in full, partially or denied?
Own 55000 shares of XYZ in registered and non-registered accounts.
Dec 16(settlement date): Buy 500 shares in registered account
Dec 30(settlement date): Sell 2500 shares in non-registered at a loss (8700 shares – 2500 shares)
No other transactions +/-30 days from sell date.

Thank you Kindly,

Tony
AdjustedCostBase.ca Post authorJanuary 14, 2020 at 11:03 am

Tony,

In that case the capital loss is fully denied and cannot be added back to the ACB of the remaining shares as the repurchase occurred in a registered account. For further information please see the following:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/
Tony January 14, 2020 at 2:37 pm

So had I not bought the 500 shares in a registered acc the loss would be fully denied but added back to the remaining shares?
Would selling the 500 shares in the registered account now while still within the 61 day period make a difference? (note i would still own shares in that registered account and no other transactions would be done for min 30 days after, both in reg and non- reg accounts).

Greatly appreciate your assistance.

Thank you

Tony
AdjustedCostBase.ca Post authorJanuary 14, 2020 at 2:44 pm

Tony,

If you had not bought the 500 shares in your registered account then the superficial loss rule would not apply, assuming there were no other transactions involving the same shares within the 61-day window.

Selling 500 shares would not have an impact and the superficial loss rule would still apply. You would need to sell all of your shares across all accounts and not repurchase them before the end of the superficial loss period to avoid the superficial loss rule.
Andy March 19, 2020 at 11:52 pm

Hello,
I was wondering if you could clarify if the following would have superficial loss if buying/selling shares of a company:

Feb 1 2019 – Buy 100 shares at $100/share in registered account
Jan 1 2020 – Buy 50 shares at $100/share in non-registered account
Jan 2 2020 – Sell all 50 shares in non-registered account at $90/share
The 100 shares in the registered account are not sold as of March 2020.

Thanks
AdjustedCostBase.ca Post authorMarch 22, 2020 at 5:47 pm

Andy,

Ownership of shares in a registered account would satisfy the second condition of the superficial loss rule, and the rule would apply (although the loss may be partially allowed in this case).
Mia March 24, 2020 at 8:51 am

Hi

I was adding entries into the application and noticed that the warning for superficial loss disappears if I sold all my rebought shares soon after rebuying.

Jan 1 2020 – Buy 100 shares at $50/share
Mar 1 2020 – Sell 100 shares at $25/share
Mar 5 2020 – Buy 200 shares at $20/share
Mar 10 2020 – Sell 200 shares at $15/share

In this case I have some questions
1) How will the superficial loss formula be applied?
2) If the 200 shares sold on Mar 10th was sold for $22/share instead, how do I calculate my gain?
3) If the shares aren’t sold on Mar 10th but rather on May 20 what happens if there’s a gain/loss?

Question unrelated to the example above: How can a superficial loss be permanently denied?
AdjustedCostBase.ca Post authorMarch 24, 2020 at 9:49 am

Mia,

If you don’t own any identical shares at the end of the superficial loss period then the superficial loss rule does not apply. Since you sold all your shares within that period, your capital gain would be calculated normally, without the superficial loss rule applied.

If the 200 shares were sold on May 20 then the superficial loss rule would apply. The capital loss for the March 1 sale would be permanently denied, but can be added to the ACB of the repurchased shares.

Note that in some cases a loss can be partially allowed but in this case the loss would be fully denied:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

If you make an in-kind transfer of shares in a registered account (or a sale occurs in a non-registered account and the shares are repurchased in a registered account) then a capital loss will be permanently denied.
Demetrius March 31, 2020 at 1:25 pm

Consider this quote from your article:

“How about when shares and bought, and then fully sold immediately after? … Remember that two conditions must apply for the superficial loss rule: shares must be bought within the 61-day period, AND, some shares must still be owned at the end of the period.”

Referring to the above example, you concluded that a superficial loss would be permitted because the investor does not own any of the shares after the 61 day period. However, you omitted the third rule that you stated at the beginning of your article:

“… or have the right to acquire the same or identical property at the end of the 61-day period.”

With this additional rule in play, it appears that the superficial loss would be denied, because although the investor does not own the shares, he still has the right to repurchase them at anytime (unless of course, the shares are delisted)

Please clarify.
AdjustedCostBase.ca Post authorApril 1, 2020 at 12:17 pm

Demetrius,

Yes, owning the right to acquire shares (call options) at the end of the superficial loss period can trigger the superficial loss rule on the sale of the underlying shares.

Which example are you referring to?
Demetrius April 1, 2020 at 1:18 pm

I was referring to the example under the heading of, “When Shares are Fully Sold Quickly After Being Purchased.”

So that third rule would suggest that I cannot claim a loss after buying and selling immediately because I have the right to acquire those shares at the end of the 61 day period. What is the intention of that rule, and what exactly does it mean to have the “right to acquire?” It seems from your response that “right to acquire” refers to options.

Here is the wording you used in your article:
“If a sale transaction triggers a loss, the superficial loss rule will apply if the following conditions are met:
1) you’ve bought the same or identical property during this 61-day period,
2) and you still own
3) or have the right to acquire the same or identical property at the end of the 61-day period. In such a case, all or part of the capital loss will be denied.”

Bottom line: Can I declare a loss if I bought and then sold all shares one day after they were acquired?
Jon April 2, 2020 at 9:12 am

Demetrius, if I may add my 2 cents:

Right to acquire refers to call options, not whether you are able to buy the stock again using conventional methods.

Bottom line: You can claim capital loss on selling your shares a day after purchasing them if you (or your spouse, corporation, etc.) do not own any shares 30 days after you’ve sold them. If you owned any shares prior to the most recent buy transaction, those must be sold off as well, otherwise, the superficial loss rule will still apply, and your capital loss may be partially or fully denied.
Demetrius April 3, 2020 at 11:29 pm

Thank you, Jon! That is the answer I was looking for!
Jay May 2, 2020 at 9:35 pm

Hi ACB.ca,
Regarding your answer to Robert on March 17/2019 Re: Transaction involving superficial loss, whether you should report that transaction in Schedule 3.
I would say it is better to include that transaction in Schedule 3 with corresponding change to adjusted cost base for the transaction.
By including that transaction in Schedule 3, your total disposition would match with the disposition reported by your financial institution to CRA for the account or for all non-registered account (if all your transactions are on a canadian exchange). That would be one less reason to trigger CRA audit.
The disposition you report will still be different than whatever is reported by your financial institution to CRA if some or all your transactions are in foreign currency. But the difference in this case might not be that great to trigger an audit as compared to omitting the “superficial loss” transaction completely.
Also, in future when you claim loss by carrying over the same “superficial loss” after selling all the securities of the company, you have a proof that you have carried over this loss from previous years.
Don’t know if I explained this correctly. Just my two cents worth. What is your opinion/comments?
Thanks
AdjustedCostBase.ca Post authorMay 3, 2020 at 12:39 pm

Jay,

That’s a reasonable viewpoint and I think there are valid reasons both for and against including dispositions involving superficial losses on Schedule 3. Unfortunately the form is poorly designed for handling this scenario. For this reason, we allow users to choose whether or not these transactions are included in our Annual Capital Gains Reports (https://www.adjustedcostbase.ca/blog/annual-capital-gains-pdf-reports/).

Note that there are many other possible reasons for a discrepancy including:

– Reporting errors made by the brokerage
– Joint ownership of holdings
– Tax elections made that impact the disposition amount
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Jasper July 13, 2020 at 3:55 pm

Hi ACB.ca

I have two accounts
1. Cash Account: 17 Apr. 2020 Buy HOU BP CRUDE OIL 2X BULL ETF
the bought amount at 100,013 and now -84.30% loss and the current market value is 15,707
2. TFSA Account: 21 Apr. 2020 Buy HOU BP CRUDE OIL 2X BULL ETF
bought at $15,701 now -51.90% loss and the current market value is -$8,149

I’m currently holding both of them.

If I want to claim a capital loss what should I do? (Can I sell them on the same day?)

1) In case both of them are in loss

2) In case the cash account in loss and TFSA account in profit
(Ex: $ 60000 loss in the cash account and $ 500 gain in the TFSA account)

I desperately need your help.

Thank you in advance.
AdjustedCostBase.ca Post authorJuly 16, 2020 at 12:12 pm

Jasper,

The superficial loss rule only applies when both of the conditions mentioned at the top of this article are met.

If you sell all units of this fund across all your accounts and don’t make any purchases within the next 30 days then the superficial loss rule will not apply because you won’t own any units at the end of the superficial loss period.
Demetrius July 16, 2020 at 12:21 pm

You can only declare the loss in the OPEN account. And you cannot buy back the shares for 30 days in ANY account including your RRSP and TFSA. Nor can your wife repurchase the shares for 30 days or even have purchased them in the past 30 days.
David Filion September 17, 2020 at 3:18 pm

If sold a naked put that is now deep in the money (I will be assigned shares soon) in my taxable account, can I buy back this put option to trigger a capital loss in my taxable account, and then purchase the shares in my RRSP/TFSA? Or would the superficial loss rule deny me this capital loss, and I would be better off letting it expire in the money? Is an in-the-money put the same as owning shares?
AdjustedCostBase.ca Post authorSeptember 20, 2020 at 6:18 pm

David,

As far as I know the superficial loss rule would not apply in that situation.
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Rob January 19, 2021 at 11:22 am

Please let em know whether the following is a way to sidestep the superficial loss rule.

A) Buy 100 shares of XYZ at $10/sh On Sep 1, 2020
B) Sell 100 shares of XYZ at $5/sh on Sept 15, 2020 for a loss of $500.
C) Buy 100 shares of XYX at $5/sh on Sept 15, 2020
D) Sell 100 shares of XYZ at $15/sh on Oct 14,2020 for a profit of $1000.
E) Buy 100 shares of XYZ at $16/sh on Oct 16, 2020.

Since I no longer hold XYZ at the end of the 30 day period. It looks like I can claim my loss and the superficial loss does not apply. But I am a couple days later after the second sell, I am long XYZ again. Of course, this will only work if the stock goes up after the second buy.

Am I correct? Is this a way to sidestep the superficial loss rule?

Rob
Dkyrtata January 19, 2021 at 12:06 pm

Yes, that will work but it is not side-stepping the loss. In the end, you declare a $500 gain on your tax return ($1000-$500), which is exactly what the government wants you to do. Without the sell (giving you a gain of $1000) on October 14th, you would have to wait until you finally sold ALL your shares whether they yielded a gain or a loss — without re-buying them again (within 30 days).

Remember, superficial losses are not permanently denied but rather deferred until a gain (or loss) can be realized at a later date when the shares are completely disposed.

That said, if your re-paurchase of your shares on Sept 15th was within your TFSA or RSP, you would be out of luck. Your superficial loss would be permanent. You (and your wife) must wait the full 30 days before re-purchaing within the RSP/TFSA.
Ben January 19, 2021 at 2:19 pm

Yes, there is no superficial loss here because you do not own any XYZ shares on the close of the day for October 15th, 2020. So that loss counts as a loss.

If your second buy had been a loss instead, then your first loss on Sept 15 would still be a loss and not superficial. Your second buy, however, would be superficial and not a loss – UNLESS you have zero remaining XYZ shares on the close of Nov 13, 2020. If you have zero shares on that date, then both losses count as losses and not superficial. If you have partial shares on that date, then the losses for the second buy get apportioned accordingly – some count as losses, some as superficial.

There is really no point in selling, then buying the same day though on Sept 15. The end result, in terms of cap gains, would be the same regardless on Oct 14 when you liquidated your holdings.
Rob January 19, 2021 at 2:46 pm

Ben — Thank you for your comments. But I am a little confused with your statement that “There is really no point in selling then buying the same day..”. In the example I provided, I would be able to claim a loss of $500 and then a Capital gain of $1000. The net gain is $500.

If I did not buy the same stock on the same day I sold it in the above example, I would have a net loss of $500.

It is my understanding that the CRA implemented the superficial loss rule to make sure that people did not sell a security at a loss for tax purposes and then buy back the same security right away (or anytime within the 30 days of selling the security). In other words, the CRA did not want people to book a loss for tax purposes but still be in the same security.

With my example, it looks like one can sell the stock for a loss for tax purposes and get right back into the same stock on the same day (or anytime with 30 days of the original sell) as long as one is still not long the stock at the end of the 30 day period from the sell. But what stops a person from selling the stock on Day 29 of the 30 day window and then buying it back again a couple of days later (ie day 32). Nothing. So one can have the cake and eat it too. But this only works, if the stock cooperates and keeps going up after one buys back the stock (i.e. the second buy in my example). If the stock went down, then the superficial loss rule would apply to the second sell (but not the first sell) assuming one was still long the stock at the end of the 30 day period from the second sell.
Ben January 19, 2021 at 3:15 pm

My point was that, it appeared as if you only sold your shares on the 15th to trigger a tax loss to offset your future gains (since it was apparent that you never intended to close your position at that time anyway – due to the fact that you immediately bought back those same shares on the same day that you sold them). But, if instead of selling those shares, you had just held onto them until your liquidation date, then your capital gains would have been identical at $ 500 (bought at $10, sold at $15 – instead of bought at $10, sold at $5, bought at $5, sold at $15).

Same thing if your liquidation date was after Oct 15th, lets say it was liquidated on the 16th of Oct instead. Then that $ 500 tax loss you attempted on the 15th of Sept would be voided as superficial – as if it never even happened in the first place.

There is NO way to beat the CRA by selling then buying back the same number of shares in the same stock on the same day to capture a tax loss. At least none that I can see.
Ben January 19, 2021 at 3:48 pm

Okay, I see where your disconnect is now:

as you stated above:
“… But what stops a person from selling the stock on Day 29 of the 30 day window and then buying it back again a couple of days later (ie day 32). Nothing.”

The timer for both shares bought and shares still held starts at the sell date. So, no you couldn’t buy those shares back right away again – there is a 30 day timer from the sell date to account for. You can’t buy the same number of shares that you sold within 30 days before or 30 days AFTER the sell date.

Technically, the timer is 61 days long. 30 days before sell date + the sell date + 30 days after the sell date.
Ben January 20, 2021 at 12:08 am

Hey Rob, that is an interesting line of thought though. If you had instead used later dates for your example, then you absolutely could harvest the temporary downturn in your stock as a tax loss, without having to sit-out a waiting period in cash.

i.e. by adjusting your example dates 3 months ahead, like so:

A) Buy 100 shares of XYZ at $10/sh On Dec 1, 2020
B) Sell 100 shares of XYZ at $5/sh on Dec 15, 2020 for a loss of $500.
C) Buy 100 shares of XYX at $5/sh on Dec 15, 2020
D) Sell 100 shares of XYZ at $15/sh on Jan 14,2021 for a profit of $1000.

then you would have a legitimate $500 tax loss to use on your 2020 tax return. By the same token, the $1000 capital gain would be applied to your 2021 return.

I mean, when you’re looking to exit the stock anyway and are certain that the unfortunate market sell-off was just an irrational over-reaction to something – right before you were going to sell it (sounds like my luck, actually), why not give it a go, right?
Rob January 20, 2021 at 12:54 pm

Ben,

Thank you for the last example. It is exactly my scenario. I sold shares for a loss in mid Dec 2020 and bought them back right away since the stock was on a clear strong uptrend. I sold them in mid January 2021 before the 30 day period ended after the first sale for a nice profit. (I actually sold the shares when the shares reached my target price. Perfect timing). At the end of the 30 day period after the first sale, I held no shares.

So it looks like I can book the loss of the initial sale as a real capital loss in 2020. And of course, I will need to pay taxes on the capital gain related to the second sale in 2021.

And if I wanted to I could buy back the stock now (since the 30 days period is over from the initial sale). A second 30 day period would not apply to the second sale since the shares were solid for a capital gain profit. (ie There was no loss involved)

So in this scenario, one could claim a capital loss and still stay long in a stock continuously (except for a couple of days) but it only really works if the stock goes up after you buy it right back. Otherwise, it does not make any sense.
Jon January 20, 2021 at 2:25 pm

Hi Rob, I still struggle to see the benefit here – is the intent of what you’re doing to harvest some loss for tax year 2020 at the expense of paying higher capital gains in 2021?

While you did not run afoul the superficial loss rule here, you didn’t really “side-step” or gain anything from it either. What am I missing?
Rob January 20, 2021 at 3:17 pm

Jon,

You need to look at it this way. If I only sold all my shares for a loss in Dec 2020 and never bought back any shares of the same stock in Dec 2020 or Jan 2021, I could only claim a capital loss for the sale in 2020. But December is often the worst time to sell due to tax loss selling. You rarely get a good price when selling your losers in December.

But if you could buy back the shares right away just after you sell them in Dec 2020, you will likely see that the share price will increase once the tax loss selling is over. (In my case, the technicals were clearly showing a strong upturn in the stock in Dec but I really wanted to harvest a capital loss).

Then if you sell the repurchased shares in Jan 2021 before the end of the 30 day period that started from the date of the first sale in Dec 2020 and make sure you do not own any shares at the end of this 30 day period, one can not only claim the capital loss in Dec 2020 but also recoup some of these losses in Jan 2021. (Of course one would need to pay capital gains tax relating to the sale in 2021 but that one has over a year to pay it). This all works if the stock cooperated and went up in value from the time you repurchased it in Dec 2020.

In other words, I am better off selling a stock for a loss in Dec 2020 and buying it right back again in 2021 when there are strong indicators that the stock will recover after tax loss selling is over. Then in January I can decide whether I want to take the loss of not. If I do, I must sell before the end of the 30 day period that started when I sold the shares in Dec 2020 and make sure I do not repurchase the shares until this 30 day period is over. If I do not want to take the loss, I just stay in the stock and the loss in December would be a superficial loss according to the superficial loss rule. (I suspect one would only do this is one really wanted to stay long in the stock and did not want to be out of the stock even for a few days).

If the shares went down after I repurchased them in Dec 2020, well one probably should not be in the stock anyway. Get out, claim another loss and look for other opportunities.

Assuming the one sold the shares for a profit in Jan 2021, one could get right back into the same stock in Jan 2021 if one wanted to (but one would have to be out of the stock for a couple of days in January since one cannot be long the stock at the end of the 30 day period that started from the first sale in Dec 2020).

One has lots of flexibility.
Dkyrtata January 28, 2021 at 2:08 pm

Does the following sell transaction on Oct 15 count as a superficial loss?

Feb 1 2020 – Purchase ABC shares in an OPEN Account
Oct 1 2020 – Purchase ABC shares in a RSP (or TFSA)
Oct 15 2020 – Sell all ABC shares in the OPEN account at a loss of say $400
AdjustedCostBase.ca Post authorJanuary 28, 2021 at 3:41 pm

Dkyrtata,

Yes, the superficial loss rule would apply in that scenario.
Dkyrtata January 28, 2021 at 6:02 pm

In that case, would retaining one share in the OPEN account allow me to carry forward the loss so that when I sell the last share (say in Dec/2020), I can declare the entire loss?
AdjustedCostBase.ca Post authorJanuary 28, 2021 at 6:20 pm

Dkyrtata,

The entire loss would not be allowable by retaining only one share, but some of the loss may be allowable depending on the number of shares purchased, sold and retained. For further information, see the following:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/
diamondhands February 24, 2021 at 1:15 pm

Hi there, I am wondering if the superficial loss rule would apply to the capital loss realized in transaction #3 from a partial sale of shares at a loss? Specifically, if you are “buying calls” within 31 calendar days after the sale occurs, is “buying calls” considered the right to acquire similar property if those calls are simply bought back to close out a call option that was sold in 2020 as part of a covered call strategy?, i.e. one is not buying net new call options on that same security, just closing out the covered call overlay? Any insight would be greatly appreciated!

#1. November 15, 2020. BUY 350 shares of Square (SQ-US) at $215/share for $75,250.
#2. November 15, 2020. SELL 3 contracts of SQ calls for $6.50/contract for $1,950.
#3. December 12, 2020. SELL 200 shares of SQ at $190/share for $38,000.
#4. January 3, 2021. BUY to close 3 contracts of SQ calls for $11.30/contract for $3,390.
#5. February 3, 2021. SELL 150 shares of SQ for $300/share for $45,000.
AdjustedCostBase.ca Post authorFebruary 26, 2021 at 10:13 pm

diamondhands,

I believe the superficial loss rule would apply for the December 12th sale. I’m not aware of any exemption due to buying options to close vs. buying options to open.
Amir March 3, 2021 at 12:44 pm

Hi, I was wondering that let’s say there is a company that has two stock symbol one for TSX and one for NYSE. Does loss in one of them affects ACB of the other one?
Should these be treated same identical property and apply superficial loss across combined transactions?
AdjustedCostBase.ca Post authorMarch 4, 2021 at 9:45 pm

Amir,

Cross-listed shares should meet the definition of identical property and as such the ACB should be tracked jointly between both. A purchase of one could result in a superficial loss for the sale of the other.
zephyr March 5, 2021 at 4:37 am

I find myself always coming back to one of your pages, so much info and a great service. any help with the following would be appreciated:

let’s say I’ve bought 100 shares of ZZZ for $1 and have held for a long time, so my acb is $100. ZZZ is now at $101/share, good stuff. If I were to sell a single share I incur a $100 capital gain, yes?

since my acb is so low and the price is so high, even if I bought another share for $101 and then sold it for $50 this would still incur a capital gain due to low acb and I could trade within short time frames buying and selling as long as I am still reflecting a capital gain due to low acb? basically as long as there is no capital loss I don’t need to worry about ever triggering a superficial loss despite buying and selling shares for short term losses?
zephyr March 5, 2021 at 4:41 am

adding to the above: basically if I know I want to stay in ZZZ, would it be advantageous to buy shares to raise the acb before selling and lower my capital gains? or would this trigger some kind of superficial loss?
AdjustedCostBase.ca Post authorMarch 5, 2021 at 7:37 pm

Zephyr,

Yes, there would be a $100 capital gain in the scenario you’ve described. The superficial loss rule only applies for capital losses and not gains.

I don’t see any advantage of buying additional shares solely for the purpose of raising your ACB per share. Let’s assume the future value will remain at $100/share at the point when you eventually sell your shares (to isolate any possible benefits/drawbacks from this strategy that occur simply because of price fluctuation). If you own 100 shares with an ACB of $1/share (total ACB is $100) the capital gain will be $9,900.

If instead you buy an additional 100 shares at $100/share today then your ACB per share becomes $50.50 (total ACB $10,100). The capital gain will still be $9,900 ((200 shares x $100/share) – $10,100) when the shares are eventually sold for $100.
zephyr March 6, 2021 at 2:12 am

hi ACB.ca,

yes it does sound like an odd question i’m sure. I guess what I’m trying to do is buy shares immediately to raise the ACB a certain amount and then sell immediately to realize a capital gain, but since I’ve pushed up the ACB the capital gain should be smaller and my tax burden would correspondingly be smaller in the tax year and I wouldn’t have to sell as many shares to generate the same amount of income if that makes sense even if the capital gain would be essentially deferred if the price remains the same, but I could split the gain over a number of years to stay in a low tax bracket. granted the risk is that if everything drops the acb may not reflect a loss that I can take, but I’m assuming a long term hold and that despite some dips things will continue to rise over the long term for this asset.

the other moving part is that i am dealing with a US Roth IRA that is not recognized by the CRA, so I am “moving” shares from my brokerage account into the Roth IRA using this buy/sell trade. from what I understand the CRA pools assets across all accounts so the shares in the Roth and the brokerage account should share the same ACB. that’s a whole other issue, but I basically need some income now, so I figure if I know I want to stay in a certain asset why not minimize the capital gain. when i run the numbers it seems to make sense, but of course depending on how the market goes things could change.
AdjustedCostBase.ca Post authorMarch 6, 2021 at 2:16 pm

Zephyr,

I’m assuming the purpose of this is to generate income from selling some of your shares, correct? Otherwise it seems most sensible not to sell anything at all to defer the capital gains.

In that case, you would need to sell the shares that you recently purchased in addition to other shares in order to maintain the same cash flow (approximately since there would be different amounts of capital gains tax payable in each scenario). In this case the immediate capital gain would actually be larger than if you had not purchased any additional shares (although future capital gains would be lower by an equal amount) in addition to the extra transaction costs.

Continuing with your example (you own 100 shares with a total ACB of $100) suppose you wanted to generate $1,000 from the sale of the shares. If you simply sold 10 shares then you would incur a capital gain of $990 (10 x ($100 – $1)). Instead, if you bought let’s say 10 shares at $100/share your total ACB would become $1,100 ($10/share for 110 shares). Then if you sold 20 shares at $100/share in order to generate the same net cash flow the capital gain would be $1,800 (20 x $100 – $10)).

So even though the superficial loss rule does not apply, it seems better to avoid buying and repurchasing additional shares. The total capital gains over the lifetime of the holding of the shares would remain the same, but future capital gains would be pulled forward (generally not a good things, although if you are in a low tax bracket for a particular year it might be a good strategy).
zephyr March 7, 2021 at 4:00 am

hi ACB,

thanks for your detailed breakdown, I understand now after reading through a couple of times. I am indeed looking to generate income and also take advantage of realizing the gains in the lowest tax bracket or even staying under the basic personal amount + deductions to have no tax owing.

I have cash in the Roth, but any amount would be subject to early withdrawal penalties, so I’m trying to buy shares in the Roth and sell in my brokerage and cash flow would not be an issue while the acb should rise with the buy and result in a lower capital gain when selling. It seems like a strange transaction to me as well, but when I plug in the numbers it feels like it makes sense. Assuming I’m going to buy then sell or sell then buy the same amount in both accounts it seems like it would be advantageous to use the buy then sell order since it minimizes the capital gain.
Blake Dubois March 14, 2021 at 6:10 pm

Hi,
I notice the examples are for buying and selling identical amounts of stock, i.e. buy 100 shares, sell 100, buy 100 again.

My situation is:
1) Buy 38 shares
2) Sell 10 shares
3) Sell 10 shares
4) Buy 2 shares
5) Sell 20 shares

These transactions all happened within a 30 calendar day period. I’ve put the transactions into the table, and it doesn’t show a warning for superficial loss. Would it be correct to say that I claim separate capital losses on 2) and 3), and then a 3rd capital loss on 5)? Or is this indeed an example of superficial loss? In that case would I add back the ACB for 2 shares to 3), in effect making 3) a sale of only 8 shares?

Thank you!
Dkyrtata March 14, 2021 at 8:04 pm

You sold all your shares, so there is no superficial loss unless you buy back within 30 days of your last sale even if you buy back in a different type of account such as an RSP or TFSA. Don’t buy back within a registered account or you will lose your loss permanently.
AdjustedCostBase.ca Post authorMarch 14, 2021 at 9:51 pm

Blake,

As Dkyrtata mentioned, the superficial loss rule would not apply if you do not own any shares at the end of the superficial loss period.

For general guidelines on the superficial loss rule when the number of repurchased shares does not equal the number of shares sold, please see the following:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/
Kenny March 28, 2021 at 1:08 pm

Hi ACB. How would superficial loss apply to capital losses incurred from the selling of options?
For example:
1/1/20 Sold 1 Put Option (MSFT) and received $100.
1/15/20 Closed 1 Put Option (MSFT) and paid $200.
Capital Loss = $100 Non-registered Account
1/30/20 Bought 100 shares of MSFT stock in RRSP (and held permanently)
Is the capital loss of $100 deemed a superficial loss?

What if I sold a Call Option instead of a Put Option – would the answer still be the same?

Thanks.
BW April 22, 2021 at 4:45 pm

Hi ACB

Regarding superficial loss and day/swing trading, I bought and sold a stock many times throughout 2020, but had sold all stocks in the company by Dec 27th 2020. Will my trades that fulfill the superficial loss in 2020 make a difference to my capital gains / losses for that year as I did not hold on to the stock through the end of the year?

Thanks.
Dkyrtata April 22, 2021 at 5:33 pm

Unless you bought back the stock before Jan 27th 2021, you did not incur a superficial loss.
Stan April 25, 2021 at 1:16 pm

Question on covered call strategy:

June 8, 2018 – buy 500 shares ABC corp
June 8, 2018 – sell 5 calls of ABC corp and receive $10k
Oct 11, 2018 – buy back 5 calls for $12k

Seems you have a $2k loss on the calls. If you sell another call with a different strike and date on October 12, 2018, that $2k loss appears superficial.

However, if you bought back the 5 calls on January 12, 2019 for $12k and sold 5 calls the next day. You would have a $10k gain on the calls you wrote in 2018 and a $12k loss on the calls you bought back in 2019, but since it is a different tax year, does the $12k gain become superficial?

Seems unfairly punished for not havinig the buy and sell in the same tax year…..one example has a $2k superficial loss and the other is a $12k superficial loss…..big difference
AdjustedCostBase.ca Post authorApril 25, 2021 at 8:49 pm

Stan,

The Income Tax Act states the following:

“for the purpose of this definition,

(i) a right to acquire a property (other than a right, as security only, derived from a mortgage, hypothec, agreement for sale or similar obligation) is deemed to be a property that is identical to the property”

This states that shares and call options on the same shares are considered identical property for the purposes of the superficial loss rule. However, I’m unsure whether this suggests that 2 non-identical call options on the same shares would be considered identical for this purpose.

The tax year that transactions occur has no bearing on whether the superficial loss rule applies. It makes no difference whether or not the 61 day window around a sale straddles the end of tax year.
Stan April 25, 2021 at 10:24 pm

When you sell options you have given someone else the right to buy the shares. And as the writer you realize the gains up front. So you don’t have the right to acquire then security as the superficial loss rule suggests. In the following year if you buy those options back you cancel that persons right to buy those shares from you. If you incur a loss at this time it would seem to make sense you should be able to take it all as you took the gain in last year. If you wrote another call after the buy back you would realize another gain at that time anyway when the new call was written. Confusing but seems to suggest to me from a practical point of view when you write covered calls and then buy back the call there are no superficial losses.
David May 3, 2021 at 1:30 pm

Hi,

I like clarification on RSU vest and whether that’s considered superficial loss. For RSU vest, my broker will execute Sell To Cover for the tax owing. Assuming I already hold existing shares of my company, I can make special election in my tax return to treat these STC as non-identical under 7(1.31) if sold within 30 days of vest and no other sales in between. So the sale will be treated in isolation for ACB and CG calculation.

My question is within the 30 days, on top of STC I also sold additional shares. Can I elect those additional shares to be part of the newly RSU vested lot and treated as non-identical?

e.g.
Hold 1000 shares with ACB $20/share
Day 1: RSU vest of 500 shares @ $50/share
Day 2: Broker STC 250 shares to cover taxes @$49/share
Day 10: Sold additional 250 shares $45/share

Can I declare day 10 as non identical? If so, does this mean I have capital loss of $1500 ($1*250 + $5*250)?

What if on day 20 I sold another 200 shares @$40? Will that 200 shares result in CG of $4000? (200*$40 – ACB of 200*$20)?

So in total will my CG be 4000 – $1500 = $2500?
Bob September 14, 2021 at 11:46 pm

Hello, I’m hoping this comment section is still open and all is well with everyone!
I want to put forward a scenario where I’ve been trading a stock with share numbers and dollar figures simplified so I don’t overcomplicate things.
I have 1000 shares of XYZ purchased at $1 each for an ACB of $1000
The stock has been bouncing around between 80 and 90 cents so I’ve traded half my shares on 2 occasions selling at 90 cents and buying back at 80 cents, completely disregarding and never reaching the required 30 days between selling and buying back to claim the loss.
So for instance in the first trade I sold 500 shares at 90 cents and then rebought the shares 10 days later for 80 cents. The loss of $50 on the sale would be superficial. But the repurchase of 500 for 80 cents would lower my ACB. I’m already getting confused.
Then I do the exact same transaction again. Sell 500 shares at 90 cents and repurchase them 10 days later for 80 cents. Again the loss would be superficial and the the repurchase would lower my ACB.
At the end of these two trades what is my ACB?
And to add another WTF to my scenario, say at some point in the same year of these two trades the stock turns positive and goes up to $1.50. Would I be able to sell all my shares at that point, being in a clear position of overall gain (say I wanted to trigger some capital gains because it was a low income year) and then buy back said shares the next day, would the new purchase price be my new ACB….. and be what I would call ‘unaffected’ by the previous trades? I would of course do all the necessary calculations to bring my previous trades in line with my sale at $1.50 to get the final proceeds of disposition etc.
But would the new purchase the next day….as long as I am in an overall gain at that point start a fresh acb at that time? Sorry if this sounds confusing….it’s confusing the hell out of me….LOL. I’m simplifying a much more complicated trading situation than that, but would like to know if when the stock finally gets into a position of a gain whether I can almost hit a ‘reset’ and sell it, buy it right back and have a simple ACB without all the previous superficial losses etc confusing the hell out of me.
Ben Greer September 15, 2021 at 9:44 am

Yes, if you completely liquidate your position to zero shares owned and you took an OVERALL profit from all of your trades, then no superficial losses taken will have mattered anyway and your stock will now have been reset for superficial loss tracking purposes. For this account only though! Any losses incurred for the identical stock in a different account (RRSP / TFSA / Spouse Accts) will still be referencing any purchases you made 30 days prior on the old “reset” account provide you had restocked the shares held in it (meaning shares owned being NOT equal to zero).

Let me add some fictional dates to your trades provided above to help clear up your ACB tracking…

02 Jan 2021 bought 1,000 shares @ $1.00 ea.
ACB = $1,000.00
ACB/Share = $1.00

01 Apr 2021 sold 500 shares @ 0.90 ea.
No shares were bought 30 days prior, however, looking ahead we see that 500 shares were bought within 30 days afterward, so this entire loss is superficial and the loss amount gets added to your new ACB.
Superficial Loss incurred = $50
new ACB = $1000 (old ACB) – $500 (old ACB of shares sold) + $50 (superficial loss) = $550.00
new ACB/share = $550 / 500 = $1.10

11 Apr 2021 bought 500 shares @ $0.80 ea.
new ACB = 550 + 400 = $950.00
new ACB/share = 950 / 1000 = $0.95

13 Oct 2021 sold 500 shares @ $0.90 ea for a 5 cent per share loss ($25.00).
No shares were bought 30 days prior, however, looking ahead we see that 500 shares were bought within 30 days afterward, so this entire loss is superficial and the loss amount gets added to your new ACB.
new ACB = 950 – 475 (shares sold * old ACB/share) + 25 (superficial loss) = $500.00
new ACB/share = $500 / 500 shares = $1.00

23 Oct 2021 bought 500 shares @ $0.80 ea. total number shares = 1,000 again.
new ACB = 500 (old ACB) + 400 (purchase cost of new shares) = $900
new ACB/share = $900 / 1,000 shares = $0.90

31 Dec 2021 sold 1,000 shares @ $1.50 ea. total number of shares remaining = 0.
the sale price of $1.50 is higher than your ACB/share cost of $0.90 so it is a profit, not a loss, that has occurred. No dates or superficial losses to worry about with profits, only with losses.
Profit incurred = ($1.50 – $0.90) x 1000 = $600
shares owned = 0
ACB = $0
ACB/share = $0

02 Jan 2022 bought 1,000 shares @ $1.00 ea
ACB = $1,000
ACB/share = $1.00
Bob September 15, 2021 at 1:21 pm

Excellent thanks for taking the time. My post looked here like it disappeared so I actually just asked a different but similar question on the Canadian Money Forum but your answer is just what I was looking for. My actual trades are ridiculously more complicated with odd numbers of shares….muliple buys and sells sometimes in the same day a couple of times (but not to the point of daytrading) so it’s good to know I can clean it up as long as I get into a gain on the entire position. Thanks again!
Diamondhands November 21, 2021 at 8:36 am

What if you sell a stock at a loss in your non registered account and then buy it back in your rrsp but only hold that stock for 25 days in your rrsp and then sell it, so at the end of the 61 day period you don’t own any shares in your non registered or registered accounts? Can the loss be claimed in the non reg account because it was never a superficial loss to begin with?
AdjustedCostBase.ca Post authorNovember 22, 2021 at 12:47 pm

Diamondhands,

Assuming these are the only transactions/holdings in your accounts, if the shares in your RRSP are sold within 30 days of the sale in your non-registered account then the superficial loss rule would not apply. If the shares in your RRSP are sold after 30 days of the sale in your non-registered account then the superficial loss rule would apply.
Diamondhands November 22, 2021 at 1:15 pm

If I sell a stock in a non reg account at a loss, and then buy it back in the non reg account after 20 days, and then buy it in an rrsp after 25 days, assuming I stivown it after 30 days, does the superficial loss get added to the acb of the shares in the non reg account after the 20 days since that purchase occured first, or does it get permanently denies regardless because it was still bought in the registered account as well?
Rob November 22, 2021 at 1:53 pm

Diamondhands — I suspect it depends. If you sold 100 shares from your non-registered account at a loss and then bought back 100 or more shares 20 days later in your non-registered account and are still hold shares in the 61 days period described in the rule in any account, then I suspect you can add the full superficial loss to the ACB of the shares in the non-registered account (even though you also bought shares in your RRSP).

If you you sold 100 shares from your non-registered account at a loss and then bought back less than 100 shares 20 days later in your non-registered account, then bought shares in your RRSP after 25 days from the first sale and still hold shares after the 61 days period described in the rule in any account is over, then I suspect you only be able to add a portion of the capital loss to the ACB of the shares remaining in your non-registered account. In this case, the capital loss is partially denied.
(Even though it does not directly address this scenario, please see
https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/ )

It does get confusing!! So next time remember to NEVER buy shares of a company in your RRSP if you ever sell shares of the same company at a loss in a non-registered account until the 61 day period (described in the superficial loss rule) is over.
Rob November 22, 2021 at 2:05 pm

P.S. I should have said — In this case, the capital loss is PERMANENTLY partially denied since adding the remaining superficial capital loss to the ACB of the shares in your RRSP does not make any sense.
Rob November 22, 2021 at 4:07 pm

Diamondhands — Here is a revised response which should be easier to read and understand.

It depends. If you sold 100 shares from your non-registered account at a loss and then bought back 100 or more shares 20 days later in your non-registered account and still hold these shares at the end of the period described in the rule, then a superficial loss occurred. In this case, I believe you can add the full superficial loss to the ACB of the shares in the non-registered account (even though you also bought shares in your RRSP at a later date).

But if you you sold 100 shares from your non-registered account at a loss, then bought back LESS THAN 100 shares 20 days later in your non-registered account and still hold all these shares at the end of the period described in the rule, then I suspect you only be able to add a portion of the superficial capital loss to the ACB of the shares remaining in your non-registered account.

Please see the web page discussing the superficial loss rule and partial dispositions:
https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/

If you also bought some shares of the same company in your RRSP in the period described in the rule, this does not help you. The remaining superficial capital loss can never be claimed since it does not make sense to change the ACB in your RRSP. (You cannot claim capital losses for tax purposes in your RRSP).

In this case, the capital loss is PERMANENTLY partially denied. Not good!

When purchases and sales of the same company takes places in both registered and non-registered accounts, the superficial loss rule gets complicated!! Believe me — Most people learn this lesson the hard way!
Rob November 22, 2021 at 8:19 pm

DiamondHands — Here is an example which should makes things a lot clearer:

1. Bought 100 shares of ABC in non-registered account at a total cost of $300.00 ($3.00/share). You own no shares in your RRSP.
2. Sold 100 shares in non-registered account with total proceeds of $200.00 ($2.00/share). You have lost $100!
3. Reacquire 25 shares in non-registered account 10 days later at a total cost of $55.00 ($2.20/share) .
4. Buy 50 shares in RRSP 25 days after the sale in 2. above also at a total cost of $55.00 ($2.20/share).
5. Still hold all these shares in the non-registered account and in the RRSP at the end of the 30 day period after the sale of the shares in 2. above. (i.e. you still own 75 shares in total between the two accounts).

Since 25 shares are reacquired in the non-registered account and 50 shares were bought in your RRSP within the 30 days period after the sale in 2. above and all these shares were held at the end of the same 30 day period, the superficial loss rule applies. Since you only reacquired 75 shares in total (between the two accounts) out of the 100 shares originally sold, one must look at the partial disposition rules. According to the CRA’s administration of the rule for the partial disposition of shares, 75% (75 shares reacquired / 100 shares originally sold) of the capital loss would be denied. Only a capital loss of $25.00 can be claimed right now!

What about the remaining $75 superficial loss? Well since some of the reacquired shares were bought in the RRSP, some of the superficial loss will be PERMANENTLY denied. 66.6666% (or 50 reacquired shares in RRSP / 75 total reacquired shares) of the remaining $75 capital loss (or $50) will be permanently denied.

In other words, only 33.3333% (or 25 shares reacquired in non-reg account / 75 shares reacquired in total) of the remaining superficial loss can be used and added to the ACB of the remaining shares in the non-registered account. (In other words, only $25.00 (or 33.3333% of $75) can be added to the ACB of the remaining shares in the non-registered account). The remaining superficial capital loss ($50) can NEVER be used since it makes no sense to add the remaining superficial loss to the ACB of the shares in the RRSP account. The remaining $50 superficial loss is permanently denied.

I hope this helps. If any one disagrees, please speak up. But this is my understanding on how it works.
mike December 8, 2021 at 5:26 am

are single stock futures considered identical properties for superficial loss rules?
that is, sale of a stock and buying of a SSF on the stock, or vice versa.
Song December 22, 2021 at 11:06 am

Hi, Thanks for the great work!
It seems to me I can sell the stock at a loss and then sell an in-the-money put without triggering superficial loss. The example is:
Bought 100 XYZ at $20.
Sell 100 XYZ at $10 and immediately sell a put at strike price of $10.
On many websites, it is said put is an “obligation”, not a “right”. I can claim the loss this year, and still remain the obligation to buy it back the next year. The risk is the stock price may go above $10, and put expires. In that case, I will keep the premium. Does my thought correct?
mike December 24, 2021 at 2:23 am

what if you are put the stock before the 30 days?
Ben December 25, 2021 at 12:49 pm

if you are put the stock before the 30 days, then it is exactly the same as if you had bought the shares in the open market (just at a worse price). in the example as stated, the entire loss amount would be superficial.
Song December 25, 2021 at 12:52 pm

Could you just sell a put that expires after 30 days?
Zacheriah January 10, 2022 at 1:59 pm

Hi, I am wondering what happens if you repurchase SOME of the disposed property. For example:

Jan 1, 2021 | Buy 100 shares APPL @ $100 (net cost $10,000)
Dec 1, 2021 | Sell 100 shares APPL @ $50 (net proceeds $5,000)
Dec 15, 2021 | Buy 50 shares APPL $ $50 (net cost $2,500)

Is the ENTIRE loss on December 1st considered superficial, or only a portion of the loss?
AdjustedCostBase.ca Post authorJanuary 10, 2022 at 9:51 pm

Zacheriah,

Only half of the loss would be superficial. For further info please see:

https://www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares/
Zacheriah January 11, 2022 at 9:23 am

Thank you so much!
Steve February 12, 2022 at 8:00 am

If I have a capital loss that I don’t have anything to offset against this year or previous years, can I sell another investment and immediately back it back to trigger a “superficial gain”? This way I can utilize my capital loss without carrying it forward into future years.
AdjustedCostBase.ca Post authorFebruary 12, 2022 at 10:51 am

Steve,

There is no such thing as a “superficial gain” so you would be permitted to do that. Note that capital losses can be carried backward up to 3 years and carried forward indefinitely, so you may not want to trigger the gain solely for this reason unless you expect to be in a higher tax bracket in the current year compared to future years.
Garry March 21, 2022 at 10:58 am

I have a question that I don’t think has been covered. I know you have discussed a superficial capital gain, but not from this perspective.

I am carrying capital losses from previous years (last 3) of approx. $10,000. I have elected to sell some stock at a $5,000 gain this year to diminish the carry over loss before I can no longer use it as it is only good for 3 years. As both were good companies, can I repurchase them right away as the sales were gains and not losses? I’m pretty sure I can but am reaching out as you may have a better perspective. Thanks!
AdjustedCostBase.ca Post authorMarch 21, 2022 at 7:09 pm

Garry,

There is no such thing as a superficial gain, so the capital gain would be reportable regardless of if and when the shares are repurchased.

There is no limit on the number of years that capital losses can be carried forward. The 3 year limit only applies to carrying capital losses back to preceding years.
Dkyrtata March 21, 2022 at 7:38 pm

To clarify the statement, “The 3-year limit only applies to carrying capital losses back to preceding years.”

I have done this many years ago. I reduced my capital losses incurred in the current tax year by applying them to my capital gains declared in the previous 3 years in my tax returns. That allowed me to reduce my capital gains to zero in those 3 years (to recover the capital gains tax I paid) but it involved amending my tax returns for each of those years.

In retrospect, it was not really worth the effort, and my paper copies of my returns no longer matched what was on record with CRA.
Jeff April 23, 2022 at 1:04 pm

Is there any updated guidance on whether the CRA requires transactions that are a Superficial loss included on Schedule 3? In previous comments it was suggested to either exclude them or change the ACB to equal the proceeds of the sale. Thanks.
Dan May 8, 2022 at 5:25 pm

I have a question that I don’t think has been covered. Can superficial loss in step 2 be added to ACB of units bought in step 3?
1. April 22nd – Bought 1000 units of stock XYZ in own and spouse’s RRSP account. Same stock already exists in own and spouses non-registered accounts.
2. April 29th – Sold at a loss ALL 100 units of stock XYZ in own non-registered account.
3. May 2nd – Bought back 100 units of stock XYZ in own non-registered account.
Inc Growth May 9, 2022 at 12:07 pm

Dear ACB,

Suppose I have been holding shares of a company for a few years and will continue to hold stock for the foreseeable future.

Case A

This current year:
June 1: Sell put (naked put)
June 10: Buy (repurchase) put at a higher price to close put position at a loss

A1: Can I claim a capital loss on the put?
A2: Could I buy shares or calls during the 61-day period surrounding June 10 without triggering the superficial loss rule?
A3: If I would repurchase the put on July 12 instead of June 10, would it change the 2 previous answers? Could I buy shares or calls during the 61-day period surrounding July 12 without triggering the superficial loss rule?

Case B

This current year
June 2: Buy put
June 15: Sell put at a lower price to close put position at a loss

B1: Can I claim a capital loss on the put?
B2: Could I buy shares or calls during the 61-day period surrounding June 15 without triggering the superficial loss rule?
B3: If I would sell the put on July 20 instead of June 15, would it change the 2 previous answers? Could I buy shares or calls during the 61-day period surrounding July 20 without triggering the superficial loss rule?

Thanks in advance,
Ben May 12, 2022 at 1:24 am

Nope, can’t save it up outside of an ACB entry. Technically speaking, on Apr 29th your unregistered account loss is transferred to the ACB of your registered account(s) that you bought the shares in. But because there are no capital gains or losses applicable there, the loss now, effectively, becomes permanently forfeit (in terms of offsetting future taxable gains, that is).

The superficial loss has to be accounted to go somewhere on that exact day that it was created on.
Ben May 12, 2022 at 1:53 am

Hey Inc Growth,
Stan and ACB had an interesting conversation about options and superficial losses a short while back in this thread (April 25th, 2021). The gist of it is that superficial losses are only really applicable to trades that either acquired identical property or had the “right” to acquire identical property. Seems to me that only the purchase of a call option, when it’s already “in-the-money”, will trigger a SL if you sell it later at a loss (or it expires unexercised). Selling a call option does not give you the right to acquire the shares (property), it gives the buyer the right to acquire property if it gets in-the-money (becomes exercisable). Buying a put will not either, obviously. Selling a put doesn’t give you the right to acquire the shares either (until the buyer of the put decides to exercise it – at which point the shares you acquired would be a straight forward ACB entry anyway – no losses to speak of). To my mind, it’s very hard to imagine a scenario where a superficial loss gets triggered by any kind of stock option trades… Or even from bad short-sell trades, for that matter.
Ben May 12, 2022 at 2:59 am

Fun question to ponder actually. I don’t trade options, but this is my take on your scenarios, as presented.

My assumptions:
bought a call option = “right” to acquire property, if certain conditions are met.
sold a call option = forced to sell property, if certain conditions are met.
bought a put option = “right” to sell property, if certain conditions are met.
sold a put option = forced to buy property, if certain conditions are met.
stock shares = property

I reason that if certain conditions weren’t met, then no “right to acquire property” could have even existed in the first place.

A1, B1: Claim the loss. You sold an OTM Put and bought an OTM Put. No “right to acquire property” existed at any time there.

A2, B2, A3, B3: Yes. Buy shares. Buy calls. No SL will be triggered. Your puts are irrelevant. “Rights” to sell property don’t matter if they are never acted on, since no actual property loss is incurred.
mike May 12, 2022 at 3:04 am

Is it a superficial loss if you move a stock with a loss from TFSA to RRSP?
How about unregged to TFSA?
Also what if you move it with a small gain intra-day and then it has a loss at end of day? It’s ok?
Also anyone know if selling a stock at a loss and buying a CDR (canadian depositary receipt) is considered a new security? E.g. sell Amazon, buy AMZN on Neo exchange (https://www.neo.inc/en/live/security-activity/AMZN#!/market-depth)
Ben May 12, 2022 at 3:40 am

No ACB adjustments to make if there was no capital loss incurred. And the CRA says to the effect that there can never be a capital loss in a TFSA or RRSP account.

A loss in an unregistered account could be deemed superficial and moved to the ACB of your TFSA. (It will be unrecoverable at that point).

Intra-day trades are fine. Only the summed daily total matters for taxable ledger entries.

Hmm, no idea about the CDR. I would reason that it is not an identical property, since it is combined with a variable share currency hedge in addition to it’s underlying security. Yes, in that respect, I would try to claim that it’s a different security altogether.
Rags March 7, 2023 at 2:14 pm

Hello,

Thank you for the great explanation. I was wondering how to actually report the superficial loss when filing the return. I have transfers from non-registered account to registered accounts and some of the positions were transferred (full positions) at a lower market value – which means superficial loss. What I am trying to find out is how to reflect that when filing and make sure that the capital loss is not included in total capital gain/loss amount calculation. Do I change the value of ACB (box 20) to be the same as the proceeds of disposition (box 21) so that the loss becomes 0? e.g. company A bought for 3000 – transferred the entire amount to a registered account at the time the value was 2500. Leading to a capital loss of 500 (as reported on the T5008). Do I change the ACB for this to 2500 so the loss becomes 0 and is then not included in capital gain/loss calculation?

Thank you for your help!
AdjustedCostBase.ca Post authorMarch 7, 2023 at 9:38 pm

Rags,

Please see this comment from above:

https://www.adjustedcostbase.ca/blog/what-is-the-superficial-loss-rule/#comment-179963
Joel Bisson May 18, 2023 at 2:40 pm

Hi ACB,

Let’s assume that I have 1000 shares of stock A at a cost base of $100 and that everyday, magically, I get 1 share of A through a dividend reinvestment plan at $50 (the shares have dropped and have stabilized to $50). Let’s assume that this will continue in the future.

One day, I decide to sell 300 shares at $50. Seeing that I will accumulate 60 shares through the drip, 60/300 of the losses will be added to the ACB and 240/300 of the losses, I will be able to claim as a loss.

That’s pretty straightforward but what happens when I decide to sell 100 shares on three consecutive days? Will the 60 shares accumulated apply to the 100 shares sold or to the entire 300 shares sold? Thanks,
Amrish December 25, 2023 at 2:56 am

Hi,

What happens when the shares are part of RSU package of a company grant.
In this scenario, I sell the shares needed to pay the tax on the same day they are vested.

For e.g.: I get 100 shares of company ABC, i had to sell 30 shares to account for the taxes for that vest. If I accumulate all those sells for the year and if this is less than the cost basis, can I claim this as a capital loss or not?
Learning January 24, 2024 at 11:52 pm

1. “Shares are sold at a loss and call options on those shares are bought during the superficial loss period.”
2. “Call options are sold at a loss and call options on the same shares are bought during the superficial loss period. This is the case even if the call options differ in strike prices and expiry dates.”

Does anyone have any examples?
1. When this happens, do you add the loss to the call options you bought? If the opposite, and you sold call options at a loss during the period and have existing shares, do you also add that loss onto your shares?
2. Would this be correct:
Dec 1 – Buy 10 call options 100 strike $5000
Dec 9 – Buy 10 call options 105 strike $4000
Dec 10 – Sell 10 call options 100 strike for $2000 loss

The 10 call options with 105 strike now have ACB of $6000? If you also have existing shares, do you choose where you add the loss onto? Thanks.
Manik March 1, 2024 at 2:45 pm

Dear ACB,

I just wanted to thank you for explaining Superficial losses in such a clear manner. I spent reading countless articles on several websites but still couldn’t grasp whether Superficial losses will apply in my case or not until I read this article.

Thank you,
Manny

248 thoughts on “What Is the Superficial Loss Rule?”

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