You’re a well-respected financial planning group. Your two largest clients—Mr. and Mrs. Laff—are afflicted by the events happening in Ukraine. They come to you wanting to divest from Russian exposure to the greatest extent possible in their individual non-registered portfolios— specifically their emerging markets funds, which are currently in an unrealized loss position (combined, ACB: $1,000,000, FMV: $720,000).
They have read up on a strategy called tax-loss harvesting and think that’s a good idea for them, seeing as how they previously triggered capital gains a couple years back. With this in mind, they want to realize their capital loss for tax purposes, then immediately use the proceeds from their Global Emerging Markets Fund to put into a new investment, the Dynamic Emerging Markets Fund.
After conducting some research, you have a high degree of confidence that their claim to capital losses will be disallowed and that their ACB in the new investment will be impacted. Because of this, you have arranged a meeting to discuss these findings.
Questions:
1. Which specific rule will prevent the Laff’s from claiming a capital loss? (2 marks)
2. Describe it using your own words. (5 marks)
Additional marks:
1. Creativity and readability—do I enjoy reading it?
2. Overall quality—is it well organized, is attention paid to spelling and grammar?
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