Skip to main content
tax matters

My good friend, Cary, made the trip to Pamplona, Spain, last year to watch the running of the bulls. I still have the text he sent me from overseas, which read: “There were two guys gored by these bulls – but they’re going to be okay." They’re still going to be stupid, but they’ll be okay, I thought to myself.

Bulls can lead to pain. The equities markets can work that way, too. We’re in the midst of the longest-running bull market in history, which will mark its 11th anniversary on March 9. Very few believe that this bull run will go on forever. Typically, bull markets end with recessions – and cracks are starting to show with the effects of the coronavirus worldwide and, closer to home, the impact on our rail networks of the protests we’ve seen. At the time of writing, both the S&P/TSX Composite Index and S&P 500 are underwater from where they started on Jan. 1, after starting the year strong.

Two things can help in times like this. First, build an all-weather portfolio that is less correlated to the markets than you might be today and, second, be prepared to make lemonade when the market hands you lemons. Today, I want to talk about this second idea – how to make the best of market downturns when it comes to your tax and estate planning.

1. Add to your retirement savings. If you have any investments that have declined in value, consider selling those losers and using the cash to contribute to your registered retirement savings plan (RRSP) or tax-free savings account (TFSA). If you sell at a loss, there won’t be any tax to pay on the disposition of your securities. Make sure that you don’t transfer your securities in-kind to your registered plans because your capital loss will be denied in this case. You still have until March 2 to contribute to your RRSP, so check for those losers, consider selling them, then contribute the cash.

2. Create interest deductions. When you borrow money and invest it to generate “income from property” (which includes interest, dividends, rents or royalties), you can generally claim a deduction for your interest costs. There’s no better time than when investments have dropped in value to sell them (there won’t be any tax cost), pay down some non-deductible debt, then borrow to reinvest again. The interest costs on your new debt will provide a deduction on your tax return, reducing your borrowing costs overall. Beware of the superficial loss rules here (more on this in a minute).

3. Save for a child’s education. If you have a child or grandchild in your life, you may want to help in saving for postsecondary education, because it won’t be cheap. You could help by selling some of your losers, then contributing the cash to a registered education savings plan (RESP). When you contribute, the government will kick in an additional 20 per cent – the Canada Education Savings Grant (CESG) – on contributions of up to $2,500 for each year. The total CESGs available are $7,200 in the child’s lifetime. Special rules could boost the grant amounts for lower income families.

4. Make some gifts to your heirs. If you have any losers in your portfolio, it’s a great time to consider transferring assets to your children or other heirs who will one day inherit the assets from you anyway. You can transfer the investments in-kind, or simply sell them and gift the cash. Either way, you’ll avoid a tax hit on the gift because of your losses, and any future growth on the assets will not face tax or probate fees in your hands. You’ll also be able to claim the capital losses to save you taxes. Not a bad estate planning manoeuvre, as long as you keep enough to live on.

5. Renovate your home. If you’re over the age of 65 or have a disability (or are a spouse or caregiver to such a person), you may be entitled to the Home Accessibility Tax Credit. It lets you claim up to $10,000 of eligible renovation costs that allow you to better access or improve your mobility around your home. If you sell an investment that has dropped in value, you won’t face tax because of the losses, but could free up some cash to make needed renovations and gain some tax savings.

6. Watch for the superficial loss rules. Any time you sell an investment at a loss, be aware that your loss could be denied if you reinvest in the same securities in the period that is 30 days after, or 30 before, your sale – a 61-day period in total. You can invest in different, but similar, investments if you’d like, but avoid reinvesting in the identical securities.

Tim Cestnick, FCPA, FCA, CPA(IL), CFP, TEP, is an author, and co-founder and CEO of Our Family Office Inc. He can be reached at