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Exchange-traded funds (ETFs) are ideal for the tax loss-selling investor

ETF tax loss selling

Many investors love ETFs because of their low cost and liquidity. The ETFs are also suitable for those who engage in tax loss selling.

Losses on the sale of ETFs are treated like losses on share sales, generating capital losses. However, when you sell shares at a loss, CRA imposes the superficial tax loss rule, which means you must wait 30 days before repurchasing the security.

The ETFs allow you to avoid the superficial loss rule while maintaining your exposure in key investment sectors. For example, if you sell shares of a drug company such as Johnson & Johnson, Merck or Pfizer at a loss and then purchase an ETF that tracks the drug companies, the superficial loss rule will not apply. You can enjoy harvesting the tax losses while remaining invested in your chosen industry.

Similarly, to avoid the superficial tax rule, you can sell your S&P 500 Index ETFs to claim the tax loss and, at the same time, buy ETFs based on the total US market.

The last day to trade your shares is December 28 to complete the settlement by December 30.

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