Transferring Capital Losses Between Spouses: A Tax Strategy 

Do you engage in trading stocks, bonds, or mutual funds? Have there been instances where you’ve profited, but your spouse has incurred losses? There’s a tax strategy that allows you to leverage your spouse’s losses to offset your gains, potentially leading to tax savings. 

Tax Strategy Illustrated: 

Imagine your spouse, Jane, holds shares in the stock market. She initially bought them for $50,000, but they’re now valued at $30,000. This means Jane has an unrealized capital loss of $20,000 on these shares. 

Conversely, you reported a capital gain of $30,000 in the previous tax year. The good news is, you can utilize Jane’s capital loss to reclaim some of the taxes you paid on your capital gain. Wondering how? Here’s a breakdown: 

• Realizing the Loss: Jane must first sell her shares at the current market value, which is $30,000. This action realizes a capital loss of $20,000. 

• Purchase by You: Subsequently, you should buy these exact shares at the market rate of $30,000. Tax regulations state that Jane’s capital loss of $20,000 will be negated because if a share is sold at a loss and the same share is bought by someone connected to the seller within 30 days of the sale, the loss is considered superficial and is therefore denied. 

• Adjusting the Cost: However, under Canadian tax rules, the $20,000 capital loss that Jane incurred gets added to the cost of the shares you just bought. So, your cost for these repurchased shares is the sum of the $30,000 you spent and the $20,000 capital loss, totaling $50,000. 

• Re-selling the Shares: The last step involves you selling the shares at their current market value of $30,000. Given that the cost of these shares is $50,000, you’ll realize a capital loss of $20,000. This means you’ve effectively shifted your spouse’s capital loss to yourself. You can then carry this loss backward to offset some of the taxes you paid on your capital gains from the prior year. 

Key Takeaway: With the right approach, even capital losses can be moved between spouses to counterbalance previous capital gains, offering both of you additional tax benefits. It’s also worth exploring other tax-saving strategies, such as income splitting with your spouse.