Category: Taxation

The last chance to dispose of stocks on the TSX will be at 12:59pm EST on December 24, 2015. These trades will settle in the 2015 calendar year. The exchange is closed on December 25, 2015 and also December 28, 2015 (in lieu of the December 26 Boxing Day holiday). Trades conducted on December 29, 2015 will settle in 2016.

Our American cousins journal their trades for taxation purposes on the transaction date and not settlement date, so they have up until December 31 to make their last-nanosecond trading decisions for tax purposes.

I have been insanely busy lately dredging the recent trainwrecks (mainly relating to oil and gas) and have been finding material of value, hence I haven’t been writing much here.

Canadian investors have until mid-day on December 24th to book capital gains and losses for the year. As there is a three-day settlement period for stock trades and since December 25 and 26 are statutory holidays in Ontario, the trades will settle in the 2015 calendar year.

If you are selling US equities, the deadline is December 26th.

This is one of those tax rules where the CRA and IRS differ – the IRS will consider a disposition on the 31st of December to be valid for the 2014 calendar year.

There is some element of psychology that goes on in December – fund managers will not want to be seen (embarrassed) with certain holdings on their year-end statements, and investors have some tax incentive to ensuring that they book losses before year end to offset income taxes. This creates supply pressure on a reasonable number of stocks that experience declines throughout the year. Clearly the theme in 2014 will be the declines experienced in oil and gas producers.

For Canadians, today is the last day to buy and sell stocks and debentures on the TSX and still have it count for the 2013 tax year.

The date for US securities is on the 26th because Boxing Day is not a trading holiday in the USA.

If it is your US tax return you are concerned with, you can sell securities up until December 31 to have the IRS consider it a 2013 tax year transaction.

Regardless of all of this, market movements at this time of year are on computer trading autopilot as most decision-makers with any market influence are away from their main desks.

Merry Christmas everybody.

I received a comment regarding the previous post on trade date vs. settlement date through email. It is comprehensive enough that I will just quote it here and thanked the individual in question for providing it.

Thank you for your posts. Regarding your post at https://divestor.com/2009/12/22/canadian-tax-rules-about-year-end-selling-trade-date-vs-settlement-date/, the link to IT-133 is broken. This is because the CRA cancelled the IT some time ago. I had considerable trouble finding out what happened to the IT, and whether or not it was due to a policy change at the CRA. So I wrote the CRA seeking a ruling on the issue of Trade vs. Settlement date. This was my reply:

Although IT-133 was cancelled, the comments contained therein continue to apply. The comments contained in paragraph 2 therein states as follows:

For the usual transactions on a Stock Exchange there is a disposition and acquisition of shares traded on a Stock Exchange, by the vendor and purchaser, respectively, on the settlement date which is the time designated by the Stock Exchange, usually two or three days subsequent to the trade date, on or before which the vendor is required to deliver the share certificates and the purchaser is required to make payment therefore.

We trust our comments will be of some assistance.

INCOME TAX RULINGS DIRECTORATE
FINANCIAL INDUSTRIES DIVISION

Please feel free to share the response publicly, but please keep my name private.

This is my first post about taxation in quite some time, but it is mostly a re-hash of my December 2009 post on the matter.

Taxation should always be a consideration in financial decision-making – e.g. all things being equal it should be preferential to include interest income in your tax-deferred accounts versus Canadian dividend income. At the end of the year, there are always decisions to be made with respect to determining when to crystallize income and/or losses through dispositions of securities.

In Canada, the calendar year where you dispose of securities is determined by the settlement date. In other words, you had until today (December 24) to sell your publicly traded securities since the settlement is 3 business days ahead – a trade today is settled on December 31st because of the Christmas holiday schedule. The TSX takes December 25 and 26th off.

If you decide to unload your shares on the TSX on December 27th, the settlement will be on January 2, 2013.

However, the Nasdaq and NYSE are open on December 26th, so if you dispose of your US shares on that date, the settlement will still be in 2012.

The taxation rules in the USA are slightly different – trade date is when your securities are disposed of, not settlement date. As far as the IRS is concerned, if you unload your shares on December 31st, that is a current year disposition and not the next calendar year.

This is one of the subtle quirks between the Canadian and US tax systems.