Fall is the time to be thinking about harvesting your client’s tax losses. If you’re concerned about losing asset class exposure while you crystallize some tax losses, don’t. ETFs can easily be used to conduct “tax swaps” to give your client continued and diversified exposure to just about any asset class you need. And, if you intend to repurchase the original investment, ETFs can help you wait out the 30-day superficial loss rule while retaining a position in the market.

You could, for instance, sell a battered Canadian technology stock or mutual fund and buy an iUnits S&P/TSX Canadian Information Technology ETF (TSX: XIT). This would allow you to capture the tax losses from the mutual fund while still holding on to the broad asset class. After 30 days you could repurchase the original investment or continue with the ETF.

Just a word of caution: it’s best not to leave tax loss harvesting to the very end of the year. The November to April span is generally a strong period in the market so tax loss selling is usually best done prior to that period. For example, in 2001, Nortel scooted up 90% from its low in September to its high in December. If you’d sold Nortel outright for the tax loss, you’d have missed out on that bounce or had to buy it back 31 days later at a higher price.

Sponsored by Barclays Global Investors Canada Limited
Contact Howard Atkinson at howard.atkinson@barclaysglobal.com

This article is intended to provide general information only and is not intended as nor should it be relied upon as advice of any kind. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional and in no circumstances in reliance upon this article.