Superficial Losses - tsiemens/acb GitHub Wiki

In general, superficial losses occur when selling at a loss within 30 days of a purchase of the same stock or an identical property, unless you do not hold any of that share at the end of the period.

For more detailed information, here are a few resources:

Depending on how many shares you buy, or how many you have remaining, you may also only suffer a "partial" superficial loss, which is also automatically determined, and shown as a fraction of your sold shares.

Some information on partial claims can be found here: www.adjustedcostbase.ca/blog/applying-the-superficial-loss-rule-for-a-partial-disposition-of-shares

Superficial Losses and Multiple Affiliates/Registered Accounts

Purchases of the same security by other affiliated persons or in your registered accounts can produce superficial losses. If all re-purchased shares are in a registered account, then the loss of the sold shares is permanently forfeited.

In "basic" cases where all repurchased shares within the superficial loss period (30 days before and after the sale) are by a single affiliate (all shares were purchased by your unregistered accounts OR your registered accounts OR some other affiliated person), the acb program will automatically generate an ACB adjustment, increasing your cost basis and deferring or forfeiting the loss.

Re-purchases in Multiple Affiliates - (Somewhat) Ambiguous Superficial Loss Scenarios

TL;DR: acb in versions v0.22.09 and before will refuse to automatically handle adjustments across multiple affiliates. In versions after this, it will conservatively use interpretation I.1 (below). The values it sees and uses for the adjustments are noted in its output to make it easier to override with manual entries if desired.

Given the available information (that I've found) which describes how to calculate both the amount of the loss which is superficial, but also how to apply the ACB adjustment, it's not entirely clear how precisely to do so in all cases. Here we'll go through some examples to illustrate.

Scenario A:

  • January 1: Buy 100 shares of X in non-registered account
  • March 10: Sell 40 shares of X in non-registered account at a loss (superficial)
  • March 11: Buy 40 shares of X in non-registered account
  • March 12: Sell 39 shares of X in non-registered account at a loss (superficial)

Here, our remaining share balance is again 61 in total, but it is clear that we must use the total number of remaining shares at the end of the period to determine the amount of the loss that is superficial (here, it should be 100% in both cases). We should not use the net number of shares acquired/disposed of in the period, excluding the current sale (ie. 1 share for the March 10 sale, and 0 shares for the March 12 sale). This interpretation appears to create a precedent and has implications on the rest of our scenarios.

Scenario B:

  • January 1: Buy 100 shares of X in non-registered account
  • March 10: Sell 40 shares of X in non-registered account at a loss (superficial)
  • March 11: Buy 40 shares of X in TFSA
  • March 12: Sell 39 shares of X in TFSA

Here, the sale on March 10 is superficial, and at the end of the 61-day period, we have 60 shares remaining in the non-registered account, and 1 share remaining in the TFSA.

Scenario C:

  • January 1: Buy 100 shares of X in non-registered account
  • March 10: Sell 40 shares of X in non-registered account at a loss (superficial?)
  • March 11: Buy 40 shares of X in TFSA
  • March 12: Sell 40 shares of X in TFSA

Here, the sale on March 10 is not clearly superficial (it is if we treat all parties as the same person for this part of the calculation), and at the end of the 61-day period, we have 60 shares remaining in the non-registered account, and 0 shares remaining in the TFSA.

Scenario D:

  • January 1: Buy 100 shares of X in non-registered account
  • January 1: Buy 2000 shares of X in TFSA
  • March 10: Sell 40 shares of X in non-registered account at a loss (superficial)
  • March 11: Buy 40 shares of X in TFSA
  • March 12: Sell 40 shares of X in TFSA

Here, the sale on March 10 is most likely superficial, and at the end of the 61-day period, we have 60 shares remaining in the non-registered account, and 1000 shares remaining in the TFSA.

Scenario E:

  • January 1: Buy 100 shares of X in non-registered account
  • January 1: Buy 2000 shares of X in TFSA
  • March 10: Sell 40 shares of X in non-registered account at a loss (superficial)
  • March 11: Buy 39 shares of X in non-registered account
  • March 11: Buy 1 share of X in TFSA

Here, the sale on March 10 is superficial, and at the end of the 61-day period, we have 99 shares remaining in the non-registered account, and 1001 share remaining in the TFSA.

Interpretations of ACB distribution

In IT-456R [1], it says the following:

If the taxpayer and related persons (spouse or controlled corporations)
are involved in the disposition and acquisition of identical property,
the superficial loss should initially be determined as if all the parties
were one person and subsequently prorated on the basis of actual substituted
property held by a person at the end of the period.

It is not entirely clear if both I.1 and I.2 are compliant with the treatment as "one person", because it doesn't suggest that parties which only sell, and do not reacquire are excluded from this. As such, I.1 would likely be the more conservative interpretation, and results in potentially worse results in terms of avoiding permanent denial of losses.

Interpretation I.1

(1) The amount of the loss which is superficial is determined using a value of B (the remaining balance) equal to the sum of shares across all parties performing sales in the period and the party making the lossy sale.

(2) Portions of the SFL which is added to the ACB of each affiliated party which performed any purchases during the period, and is based on their total held shares at the end of the period. [2][3]

  • In scenario B, 100% of the loss is superficial, and 100% of the ACB adjustment is allocated to the TFSA, which results in it being entirely permanently denied.
  • In scenario C, like in scenario B, the entire loss is permanently denied, despite there being zero shares in the registered account at the end.
  • In scenario D, 100% of the loss is superficial, and is 100% denied.
  • In scenario E, the entire loss is superficial, and (99/1100) of the loss is added to the non-registered ACB, and the remaining (1001/1100) is permanently denied.

Interpretation I.2

Like I.1, but (1) only includes the total balances of parties performing buys within the period.

  • In scenario B, the remaining balance is 1, and therefore 1/40 of the loss is superficial, and is permanently denied.
  • In scenario C, the loss is not superficial at all.
  • In scenario D, this has the same result as I.1
  • In scenario E, this has the same result as I.1

Manually Specifying Superficial Losses

As v0.22.09, you can manually specify/override superficial losses and ACB adjustments. This may be required in some scenarios involving multiple affiliates, or you may encounter scenarios where your tax advisor suggests some less-obvious adjustments.

To do this, your transaction CSV file will need an additional column titled "superficial loss". For your losing Sell transaction, add a negative loss value in this column in CAD. This value will be subtracted from your capital gain (loss). If you add this value, the acb program will then skip automatic generation of an adjusted-cost basis adjustment for this superficial loss, and rely on you to specify this yourself.

This ACB adjustment will look like this, with the total adjustment being shares * amount/share. Typically it should be equal to your superficial loss.

security trade date settlement date action shares amount/share currency exchange rate commission affiliate memo superficial loss
FOO 2019-04-08 2019-04-10 SfLA 1 123.45            

Note that the currency for SfLA entries are always in CAD

For the sake of sanity/safety, the acb program will verify that this value is equal to the actual calculated superficial loss, and emit an error if they do not match. This is useful in scenarios where you are not making changes to the superficial loss, but need to make specific ACB adjustments with that deferred loss.

If you need to disable the check, such as when the detected superficial loss value is not correct for whatever reason, you can terminate your superficial loss value in the Sell transaction with an exclamation mark. eg. "-123.45!".

Caveats / Things To Watch Out For

Identical Properties

As mentioned above, disposition of an "identical property", such as ETFs tracking the exact same index, or an ETF which only owns a single other fund or stock, can cause superficial losses in one property when repurchasing in the other.

The acb program cannot detect these currently, so it is up to you to manually add your superficial losses and ACB adjustments into your transactions. This is not possible (at least not nicely) in versions v0.22.08 and earlier.

Sources