By Kerri Quinn
Head of Index Solutions
What Advisors Need to Know About Managing Tax-Efficient Portfolios in Canada and the U.S.
Tax-loss harvesting remains one of the most effective strategies for managing taxable investment portfolios. However, the rules governing this strategy differ significantly between Canada and the United States.
What Is Tax-Loss Harvesting?
Tax-loss harvesting involves strategically selling investments that have declined in value to realize capital losses. These losses can then offset capital gains—and in some cases, even regular income—reducing the investor’s tax liability.
While the foundational concept is shared across Canada and the U.S., the tax treatment, income offset rules, and superficial loss/wash sale rules differ in key ways.
Key Cross-Border Differences
1. Capital Loss Treatment
- Canada: Capital losses can only be applied against capital gains—not regular income. An exception applies in the year of death.
- United States: Up to $3,000 in net capital losses ($1,500 if married filing separately) can be deducted against ordinary income annually.
- Takeaway: U.S. investors benefit from more flexible short-term tax relief—even in years without realized gains.
2. Inclusion Rates
- Canada: Only 50% of capital gains are taxable, and only 50% of capital losses are deductible.
- United States: 100% of gains and losses are reportable. Long-term gains are taxed at preferential rates (0%, 15%, or 20%).
- Takeaway: Canada’s inclusion rate dampens both the tax burden and the benefit of harvesting losses.
3. Carryback & Carryforward Rules
- Canada: Capital losses can be carried forward indefinitely or carried back up to 3 years.
- United States: Losses may be carried forward indefinitely. Carrybacks are not allowed for individuals (some business exceptions exist).
- Takeaway: This flexibility gives Canadians more options for tax planning compared to Americans who can only carry losses forward.
4. Superficial Loss vs. Wash Sale Rule
- Both countries have rules that deny losses if the same (or substantially identical) security is repurchased within a 61-day window.
- Canada: The superficial loss rule applies to repurchases by the investor or affiliated persons (e.g., spouses) within 30 days before or after the sale.
- United States: The wash sale rule functions similarly, denying losses when repurchased within the same 61-day window.
5. The Cross-Account Trap
- A critical difference lies in how registered or tax-advantaged accounts are treated.
- Canada: Repurchasing a security in an RRSP or TFSA within the superficial loss window results in permanent loss denial—not deferral.
- United States: Repurchasing in an IRA or 401(k) has the same permanent denial effect.
- Takeaway: Advisors must coordinate across client and spouse accounts to avoid this irreversible tax impact.
Superficial Loss Example (Canada)
Jane purchases 100 shares of XYZ at $50/share on January 1. Her total cost is $5,000. On November 1, she sells all shares at $30/share, realizing a $2,000 capital loss. Two weeks later, on November 15, she repurchases 100 shares of XYZ at $32/share.
Because she repurchased within 30 days, the superficial loss rule is triggered. Her $2,000 loss is denied and added to the adjusted cost base (ACB) of the new shares. Her new ACB is $5,200 ($3,200 purchase price + $2,000 denied loss). The tax benefit is deferred until she sells the repurchased shares.
Why Monitoring Multiple Accounts Matters
One of the most overlooked risks in tax-loss harvesting is cross-account repurchasing—especially in households with joint or spousal accounts.
Advisors must track:
– Client and spousal trades
– Registered and non-registered activity
– Timing of buys/sells across custodians
Failure to do so can trigger superficial/wash sale rules and result in denied or deferred losses, undermining tax optimization efforts.
How Alphathena Supports Advisors
Alphathena helps advisors prevent costly tax missteps by:
– Monitoring household-level accounts across registrations
– Flagging potential superficial or wash sale risk
– Centralizing tax-loss harvesting data to inform trade decisions
– Improving tax outcomes and advisor compliance without manual tracking
Key Takeaways: Canada vs. U.S. Tax-Loss Harvesting Rules
| Consideration | Canada | United States |
| Ordinary Income Offset | Not permitted (except at death) | $3,000/year ($1,500 if married filing separately) |
| Inclusion Rate | 50% of gains/losses | 100% of gains/losses |
| Loss Carryback | Allowed (3 years) | Not allowed |
| Loss Carryforward | Indefinite | Indefinite |
| Superficial/Wash Sale | 61-day window; applies to RRSP/TFSA | 61-day window; applies to IRA/401(k) |
| Cross-Account Risk | Loss may be permanently denied | Same |
Related Readings:
