Scramble: To climb or move quickly using one's own hands and feet, up or down a steep incline, generally not on a marked pathway.
For some of us, while on vacation the temptation to scramble up a mountain side is irresistible. We gaze up at a shale-encrusted rocky outcropping next to a well-worn trail and our eyes light up. From our vantage point below, we envision a Spiderman-like ascent on hand and knee and foot, scooting up the vertical like a squirrel, chirping at the flatlanders below.
Loose rocks tend to dislodge when we scramble. It was on one of these journeys, at a YMCA camp in my youth that I squirmed over a hillside at the front of a small group of boys, dislodging a softball sized rock as I crested the precipice. Before I could warn the parties below, my friend was already holding his head, blood streaming down his face and onto his T-shirt. Full stop. Hike over.
I felt sick, knowing that the little boulder had gained enough momentum to potentially seriously hurt him. Earlier that day I had fought with him, connecting my fist against that same head. Now he was laying on the ground, his fresh blood being mopped up with a makeshift bandage.
Fortunately, his head was tougher than the average walnut, as evidenced by the bandaged bruise on my right hand knuckle. But it was a bad scene and still a discomforting memory - his wrapped head, my bandaged hand, and the haunting, slow-motion descent of the rock, dislodged by the scrambling motion of my Adidas.
We tend to glorify the trailblazer, but more the blazing than the trail. Perhaps most of us descend from adventurers of some sort, who left the customs of a homeland and broke new ground somewhere west of tradition. But we miss the whole point if we ignore that well-planned pathway, loose rocks long since removed, sheer cliffs carefully avoided years before.
Just in case the metaphor wasn't already yodeling for you, the peaks and valleys of a market do tend to resemble the coastal mountains that adorned my youth camp. By no means is this a prescription for strict adherence to crowded paths, but the better we know the path, the better we can appreciate the risks of venturing away from it.
In our second installment detailing the usefulness of market dips, we outline a few more year-end ideas for consideration here.
Superficial loss rules
Last week we outlined some advantages of triggering capital losses between now and year-end.
In order to ensure that your capital loss can be claimed, you must be aware of the "superficial loss" rules. A superficial loss will occur when a security is sold for a loss and both of the following occur:
The identical property is acquired during the period beginning 30 days before the disposition and ending 30 days after;
At the end of the above period, you still hold the identical property.
Among other situations, the superficial loss rules will also apply if you sell an investment at a loss and it is acquired by an affiliated person (such as a spouse, or a corporation or trust one of you controls) during the same time period.
Superficial losses apply across all of your accounts; so if you sell an investment in one account and purchase it in another within the 30 day period, you may be offside. If you purchase mutual funds on a pre-authorized contribution plan, be sure to check all of your accounts to make sure you are not buying the same mutual fund you are selling (in a different account perhaps) for tax loss purposes within the 60 days that may trigger a superficial loss.
Capital gains deferral
Deferring a capital gain to next year is also a common tax planning strategy. As we approach the end of 2015, if you currently have unrealized capital gains you may want to consider deferring the realization of capital gains until 2016 for the following reasons:
Your marginal tax rate may be lower in 2016 compared to 2015;
Realizing capital gains at the end of this year means that any tax payable associated with the gains would have to be remitted to the Canada Revenue Agency (CRA) by April 30, 2016. Realizing capital gains at the beginning of 2016 defers your tax due to April 201 - a bird in the hand.
If you have net capital losses in 2015, you can carry back those losses against previously realized capital gains in 2012, 2013 and/or 2014. However, before losses can be carried back, they must first be used to offset capital gains in the current year. Therefore, realizing capital gains at the end of 2015 would reduce that effect.
As always, consider the investment merits of deferring the sale of a security to the following year for the purpose of deferring the realization of a capital gain.
This article is not meant as personalized tax or legal advice. Readers should consult their own tax professionals before proceeding with a strategy.
Mark Ryan is an advisor with RBC Wealth Management, Dominion Securities (member CIPF) and can be reached at [email protected].
