Investor Education
5 Facts on Moving Oil By Water
5 Facts on Moving Oil By Water
This infographic is brought to you by the Canadian Chamber of Commerce.
Advance of technology, better practices and stricter regulations and policies have made the transportation of oil safer. However, the concern shown by British Columbians is equally valid, as we have seen the devastation that can be caused by a major oil spill.
This is an important issue because the Canadian Oil Boom has transformed Canada into a major oil player on an international level, especially with the oil sands in Alberta and the associated Keystone XL Pipeline. A steady rise in global demand is putting tremendous pressure on Canada to produce more oil.
Investor Education
Visualized: A Step-by-Step Guide to Tax-Loss Harvesting
In Canada, tax-loss harvesting allows investors to turn losses into tax savings. This graphic breaks down how it works in four simple steps.
A Step-by-Step Guide to Tax-Loss Harvesting
Market ups and downs can be unnerving, but the good news is that tax-loss harvesting allows investors in Canada to capture tax savings when their portfolio drops in value.
While it sounds complicated, a tax-loss harvesting strategy is actually fairly straightforward. An investor can use capital losses to offset capital gains found elsewhere in their portfolio, leading to a lower tax bill. While there are important conditions to keep in mind, investors can use this strategy to enhance portfolio returns over time by reinvesting these tax savings.
This graphic from Fidelity Investments shows how tax-loss harvesting works and why it may improve tax efficiency in an investor’s portfolio.
Breaking It Down
Consider a person who invested $50,000 in a mutual fund held in a non-registered account that has dropped by $10,000 in value. To help minimize losses, they took the following steps in a tax-loss harvesting strategy.
For the sake of this example, taxes are based on the maximum federal rate and the average maximum provincial tax rate.
- Sold investment with a $10,000 loss
- Invested $40,000 into a different mutual fund
- Used the $10,000 capital loss to offset capital gains realized elsewhere in the non-registered portfolio
- Achieved up to $2,550 in tax savings
The investor realized as much as $2,550 in tax savings by utilizing a $10,000 loss against a $10,000 capital gain. Without tax-loss harvesting, this $10,000 capital gain would be taxed at a 50% capital gains inclusion rate ($10,000 X 50% = $5,000). This $5,000 in applicable gains is then taxed at a 51% combined federal and provincial tax rate ($5,000 X 51% = $2,550 in taxes owed).
In contrast, by using tax-loss harvesting, the investor would have achieved up to $2,550 in tax savings.
What’s more, you can reinvest your tax savings over each year—which may help boost portfolio returns over time if the new investment increases in value.
Tax-Loss Harvesting Tips
With a tax-loss harvesting strategy, here are some key tips and considerations to keep in mind:
- Investment Timeline: A capital loss can be used to offset capital gains not only in the current year, but in the three years prior and/or any year indefinitely in the future.
- New Investment Type: After selling an investment that’s dropped in value, it’s important to buy a different investment to avoid triggering the ‘superficial loss rule’. Investors can aim to choose an investment with similar long-term returns.
- Plan for Year-End: In order to achieve a capital loss, plan to sell an investment at least two to three days before the year’s final trading day so the investment settles before year-end.
Together, these tips can help investors strategically execute a tax-loss harvesting strategy.
Tax Made Easier
During volatile markets, investors can seize the opportunity to turn losses into tax savings using tax-loss harvesting as a key tool to help generate higher after-tax returns.
Explore Fidelity’s tax calculator to discover tax-saving opportunities.
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