{"id":589,"date":"2014-11-05T15:03:58","date_gmt":"2014-11-05T20:03:58","guid":{"rendered":"http:\/\/www.adjustedcostbase.ca\/blog\/?p=589"},"modified":"2015-01-05T08:38:31","modified_gmt":"2015-01-05T13:38:31","slug":"applying-the-superficial-loss-rule-with-adjusted-cost-base-ca","status":"publish","type":"post","link":"https:\/\/www.adjustedcostbase.ca\/blog\/applying-the-superficial-loss-rule-with-adjusted-cost-base-ca\/","title":{"rendered":"Applying the Superficial Loss Rule with AdjustedCostBase.ca"},"content":{"rendered":"<p>The <a title=\"What Is the Superficial Loss Rule?\" href=\"https:\/\/www.adjustedcostbase.ca\/blog\/what-is-the-superficial-loss-rule\/\">superficial loss rule<\/a> prohibits claiming a capital loss when you (or your spouse or other entity affiliated with you) repurchase identical property within the period beginning 30 days before the sale and ending 30 days afterwards, and the property is still owned at the end of this period.<\/p>\n<p>The onus is on the taxpayer to determine when the superficial loss rule applies.\u00a0 <a title=\"AdjustedCostBase.ca\" href=\"http:\/\/www.AdjustedCostBase.ca\">AdjustedCostBase.ca<\/a> is a free web-based application that allows Canadian investors to calculate their adjusted cost base and capital gains.\u00a0 The service provides some features to assist you with identifying when the superficial loss rule may apply and for applying the rule.\u00a0 The methodology for using these features is described below through some examples.<\/p>\n<p><span style=\"text-decoration: underline;\"><strong>Example #1<\/strong><\/span><\/p>\n<p>Let&#8217;s start with the following example (this happens to be the same as Example #1 in <a title=\"What Is the Superficial Loss Rule?\" href=\"https:\/\/www.adjustedcostbase.ca\/blog\/what-is-the-superficial-loss-rule\/\">What Is the Superficial Loss Rule?<\/a>):<\/p>\n<ul>\n<li>January 6th, 2014: Buy 100 shares for $50 per share<\/li>\n<li>November 3rd, 2014: Sell 100 shares for $30 per share<\/li>\n<li>November 4th, 2014: Buy 100 shares for $30 per share<\/li>\n<li>December 2nd, 2015: Sell 100 shares for $80 per share<\/li>\n<\/ul>\n<p>For simplicity we assume that no transaction fees are applicable.\u00a0 First, let&#8217;s enter these transactions into AdjustedCostBase.ca.\u00a0 After doing so, you should see the following list of transactions:<\/p>\n<p><a href=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR.png\" data-rel=\"lightbox-image-0\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"size-full wp-image-591\" src=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR.png\" alt=\"Superficial Loss Rule Not Applied\" width=\"975\" height=\"192\" srcset=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR.png 975w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR-300x59.png 300w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR-624x122.png 624w\" sizes=\"auto, (max-width: 975px) 100vw, 975px\" \/><\/a><\/p>\n<p>Note that the superficial loss rule should apply for the sale transaction on November 3rd, 2014 because the shares have been repurchased the very next day.\u00a0 The capital loss of $2,000 cannot be claimed according to the superficial loss rule.\u00a0 AdjustedCostBase.ca does not automatically apply the superficial loss rule <span class=\"st\">\u2014<\/span> it&#8217;s up to you to do so.<\/p>\n<p>You&#8217;ll see a warning icon for the &#8220;Sell&#8221; transaction and when you move your mouse over it a message pops up indicating that the superficial loss rule may apply to this transaction:<\/p>\n<p><a href=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/the_superficial_loss_rule_may_apply_for_this_transaction.png\" data-rel=\"lightbox-image-1\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-592 size-full\" src=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/the_superficial_loss_rule_may_apply_for_this_transaction.png\" alt=\"Superficial Loss Warning\" width=\"423\" height=\"77\" srcset=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/the_superficial_loss_rule_may_apply_for_this_transaction.png 423w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/the_superficial_loss_rule_may_apply_for_this_transaction-300x54.png 300w\" sizes=\"auto, (max-width: 423px) 100vw, 423px\" \/><\/a><br \/>\nIn general, AdjustedCostBase.ca will not always correctly inform you when the superficial loss rule applies.\u00a0 The are many scenarios where the rule may apply, but AdjustedCostBase.ca does not have all the information that&#8217;s necessary to determine this (more on this below).\u00a0 But in simple cases where all the transactions are entered into AdjustedCostBase.ca in the same account and portfolio, AdjustedCostBase.ca will present you with the warning above.<\/p>\n<p>Once you&#8217;ve determined that the superficial loss rule should apply, you need to instruct AdjustedCostBase.ca to apply the rule.\u00a0 AdjustedCostBase.ca will not automatically apply the rule even if the warning message appears.\u00a0 To apply the superficial loss rule, you need to edit the &#8220;Sell&#8221; transaction:<\/p>\n<p><a href=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR_edit_highlighted.png\" data-rel=\"lightbox-image-2\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-594 size-full\" src=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR_edit_highlighted.png\" alt=\"Transactions for SLR\" width=\"975\" height=\"192\" srcset=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR_edit_highlighted.png 975w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR_edit_highlighted-300x59.png 300w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_not_applied_SLR_edit_highlighted-624x122.png 624w\" sizes=\"auto, (max-width: 975px) 100vw, 975px\" \/><\/a><\/p>\n<p>In the form for editing the transaction you&#8217;ll see a checkbox labeled &#8220;<label for=\"superficial_loss\">Apply Superficial Loss Rule.<\/label>&#8221;\u00a0 This checkbox should be checked off in order to apply the superficial loss rule.\u00a0 Then two new fields will appear:<\/p>\n<ul>\n<li>Adjusted Capital Loss<\/li>\n<li>Add Reduction in Capital Loss to ACB<\/li>\n<\/ul>\n<p>The &#8220;Adjusted Capital Loss&#8221; is the dollar amount to which the capital loss is reduced.\u00a0 In the majority of cases, the superficial loss rule completely denies the loss, and you should enter $0.<\/p>\n<p>The &#8220;Add Reduction in Capital Loss to ACB&#8221; checkbox indicates whether or not the reduction in capital loss should be added back into the ACB for this security.\u00a0 In this example, you&#8217;ll this box should be checked off because the denied capital loss should indeed to added back to the ACB.<\/p>\n<p>In some circumstances, such as when the repurchase occurs in a registered account or in your spouse&#8217;s account, this box should be unchecked.\u00a0 This is because the ACB adjustment should occur in the account where the repurchase occurs.<\/p>\n<p>For this example, you should enter $0 as the &#8220;Adjusted Capital Loss&#8221; (the loss is fully denied) and the &#8220;Add Reduction in Capital Loss to ACB&#8221; checkbox should be checked (the reduction in capital loss should be added back to the ACB).\u00a0 The form should appear as follows:<\/p>\n<p><a href=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form.png\" data-rel=\"lightbox-image-3\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-595 size-full\" src=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form.png\" alt=\"Edit Transaction\" width=\"974\" height=\"463\" srcset=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form.png 974w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form-300x142.png 300w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form-624x296.png 624w\" sizes=\"auto, (max-width: 974px) 100vw, 974px\" \/><\/a><\/p>\n<p>After successfully editing the transaction, the list of transactions should be as follows:<\/p>\n<p><a href=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR.png\" data-rel=\"lightbox-image-4\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-596 size-full\" src=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR.png\" alt=\"Transactions for SLR\" width=\"971\" height=\"203\" srcset=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR.png 971w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR-300x62.png 300w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR-624x130.png 624w\" sizes=\"auto, (max-width: 971px) 100vw, 971px\" \/><\/a><\/p>\n<p>You&#8217;ll notice that the $2,000 is crossed off and replaced with $0.\u00a0 Instead of the ACB on 2014-Nov-03 being reduced to $0, it&#8217;s now $2,000 (because the $2,000 denied capital loss is added back to the ACB).\u00a0 The capital gain on 2015-Dec-02 is now reduced to $3,000 from $5,000.<\/p>\n<p><span style=\"text-decoration: underline;\"><strong>Example #2<\/strong><\/span><\/p>\n<p>Let&#8217;s now modify Example #1 slightly:<\/p>\n<ul>\n<li>January 6th, 2014: Buy 100 shares for $50 per share<\/li>\n<li>November 3rd, 2014: Sell 100 shares for $30 per share<\/li>\n<li>November 4th, 2014: Buy 100 shares for $30 per share <em><strong>in your RRSP account<\/strong><\/em><\/li>\n<li>December 2nd, 2015: Sell 100 shares for $80 per share <em><strong>in your RRSP account<\/strong><\/em><\/li>\n<\/ul>\n<p>The buy transaction on 2014-Nov-04 and the sell transaction on 2015-Dec-02 now occur in your RRSP account instead of your non-registered account.\u00a0 First let&#8217;s enter the first 2 transactions into AdjustedCostBase.ca (the last two transactions should not be entered because ACB need not be tracked for registered accounts):<\/p>\n<p><a href=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_rrsp_SLR.png\" data-rel=\"lightbox-image-5\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-597 size-full\" src=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_rrsp_SLR.png\" alt=\"Transactions for SLR\" width=\"972\" height=\"131\" srcset=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_rrsp_SLR.png 972w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_rrsp_SLR-300x40.png 300w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_rrsp_SLR-624x84.png 624w\" sizes=\"auto, (max-width: 972px) 100vw, 972px\" \/><\/a><br \/>\nNo warning about the superficial loss rule is present because the repurchase transaction isn&#8217;t included.\u00a0 But the superficial loss rule does nonetheless apply.\u00a0 To apply the rule, you&#8217;ll need to click on the &#8220;Edit&#8221; link for the &#8220;Sell&#8221; transaction.<\/p>\n<p>Again, you should enter $0 as the &#8220;Adjusted Capital Loss&#8221; (the loss is fully denied).\u00a0 But this time, the &#8220;Add Reduction in Capital Loss to ACB&#8221; checkbox should be unchecked because the denied capital loss should not be added back to the ACB of the security in your non-registered account.\u00a0 The form should appear as follows:<\/p>\n<p><a href=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form_RRSP.png\" data-rel=\"lightbox-image-6\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-598 size-full\" src=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form_RRSP.png\" alt=\"Edit Transaction\" width=\"970\" height=\"459\" srcset=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form_RRSP.png 970w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form_RRSP-300x141.png 300w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_edit_transaction_form_RRSP-624x295.png 624w\" sizes=\"auto, (max-width: 970px) 100vw, 970px\" \/><\/a><\/p>\n<p>After applying the superficial loss rule, the list of transactions is now:<\/p>\n<p><a href=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR_RRSP.png\" data-rel=\"lightbox-image-7\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"aligncenter wp-image-599 size-full\" src=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR_RRSP.png\" alt=\"Transactions for SLR\" width=\"972\" height=\"152\" srcset=\"https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR_RRSP.png 972w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR_RRSP-300x46.png 300w, https:\/\/www.adjustedcostbase.ca\/blog\/wp-content\/uploads\/superficial_loss_rule_applied_SLR_RRSP-624x97.png 624w\" sizes=\"auto, (max-width: 972px) 100vw, 972px\" \/><\/a><\/p>\n<p>The capital loss is denied and reduced from $2,000 to $0 (as was the case in Example #1).\u00a0 But the reduction in the capital loss is not added to the ACB here, because the repurchase occurred in a registered account.\u00a0 The ACB is $0 following the &#8220;Sell&#8221; transaction.<\/p>\n<p>A similar situation would apply when the repurchase occurs in a spouse&#8217;s account or a corporate, trust, or partnership account controlled by you or your spouse.\u00a0 But in these cases, the ACB of the security in the account where the repurchase occurs should be increased by the amount of the denied capital loss.<\/p>\n<p><strong><span style=\"text-decoration: underline;\">Can I Always Rely on AdjustedCostBase.ca to Tell Me When to Apply the Superficial Loss Rule?<\/span><\/strong><\/p>\n<p>No.\u00a0 AdjustedCostBase.ca does not have all the necessary information to do so in all cases.\u00a0 The following cases are examples of when it&#8217;s necessary for you to determine if the superficial loss rule should apply:<\/p>\n<ul>\n<li>A repurchase triggering the superficial loss rule that occurs in your spouse&#8217;s account or an account of a trust, corporation, or partnership controlled by you or your spouse.<\/li>\n<li>When you repurchase another ETF within the superficial loss period that tracks the same index of an ETF you&#8217;ve sold at a loss.\u00a0 AdjustedCostBase.ca does not know that the two securities are ETF&#8217;s tracking the same index.\u00a0 It&#8217;s up to you to identify when this situation applies.<\/li>\n<li>When you repurchase identical property in a registered account.\u00a0 Transactions in registered accounts do not need to be entered into AdjustedCostBase.ca (<a title=\"Should RRSP and TFSA Transactions be Included when Calculating ACB?\" href=\"https:\/\/www.adjustedcostbase.ca\/blog\/should-rrsp-and-tfsa-transactions-be-included-when-calculating-acb\/\">and you should not be entering them in the same portfolio you use for non-registered accounts<\/a>).<\/li>\n<li>When you still own the right to purchase the identical security at the end of the superficial loss period.\u00a0 For example, if you still own call options at the end of the superficial loss period, the superficial loss rule may apply.\u00a0 AdjustedCostBase.ca will not inform you about this.<\/li>\n<\/ul>\n<p>In general, AdjustedCostBase.ca will only warn you about the superficial loss rule when &#8220;Buy&#8221; and &#8220;Sell&#8221; transactions occur within the same portfolio (and even when a warning occurs, it&#8217;s up to you to apply the superficial loss rule).\u00a0 In the situations mentioned above (and possibly some others) you&#8217;ll need to figure out when the superficial loss rule should be applied.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>The superficial loss rule prohibits claiming a capital loss when you (or your spouse or other entity affiliated with you) repurchase identical property within the period beginning 30 days before the sale and ending 30 days afterwards, and the property is still owned at the end of this period. The onus is on the taxpayer [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[],"class_list":["post-589","post","type-post","status-publish","format-standard","hentry","category-adjustedcostbase-ca-site-help"],"_links":{"self":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/589","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/comments?post=589"}],"version-history":[{"count":44,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/589\/revisions"}],"predecessor-version":[{"id":640,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/posts\/589\/revisions\/640"}],"wp:attachment":[{"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/media?parent=589"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/categories?post=589"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.adjustedcostbase.ca\/blog\/wp-json\/wp\/v2\/tags?post=589"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}