In this Issue
• Make the Most of Year-End: Understanding Tax-Loss Selling in Canada
• RRIF Withdrawals: How to Eliminate the Need for Tax Installments
• The Simple Way to Determine your Target Asset Allocation• Make the Most of Year-End: Understanding Tax-Loss Selling in Canada
Make the Most of Year-End: Understanding Tax-Loss Selling in Canada
From the Desk of Ryan Chan, CFP
• Financial Advisor Associate, Manulife Wealth Inc.
As the year draws to a close, it’s a good time to review your investment portfolio and consider whether tax-loss selling could help reduce your 2025 tax bill. In Canada, if you sell an investment in a non-registered account at a loss, that loss can be harvested and used to offset capital gains realized this year, or carried back three years (or forward indefinitely) to offset gains in other years.
Capital Loss Inclusion Rate
This strategy is excellent in another strong year for the stock market as now is a good time to reassess losing positions and potentially liquidate certain positions to apply against your capital gains. In Canada, just like capital gains, the inclusion rate to determine your allowable capital loss is 50%. (https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html)
Superficial Loss Rule
When completing the tax loss harvesting strategy, keep in the mind the superficial loss rule. This rule disallows a capital loss deduction if you or an affiliated person sells a security at a capital loss and then repurchases the same security within a 61-day window (30 days before and 30 days after a sale).
Sectors of Market for Capital Gains/Losses
Sectors of the market that have seen heavy gains for the year and are ripe for profit taking are in technology. financials, defense (industrials), and utilities. Sectors of the market that have underperformed this year and present capital loss harvesting opportunities are in health care, real estate, and materials.
Takeaway
Used strategically, tax-loss selling can be a smart way to enhance after-tax returns and tidy up your portfolio heading into 2026. It’s a good idea to review your holdings with us before the year-end to identify suitable securities for sale and your overall realized gains for the year in your portfolio. Planning now can translate into meaningful tax savings before the year end, and a cleaner investment slate for the new year.
RRIF Withdrawals: How to Eliminate the Need for Tax Installments
From the Desk of Monika Kucinskaite
• Financial Advisor Associate, Manulife Wealth Inc.
Many retirees get confused when they receive notices from the Canada Revenue Agency (CRA) requiring quarterly tax installment payments. During working years, most people have their taxes automatically deducted by their employer, so installments can feel unexpected.
Installments are triggered when not enough tax is withheld on your income or if you are self-employed or have income from rentals, investments, pensions, or more than one job. That happens when your net tax owing for the previous year is over $3,000. In that case, the CRA wants to ensure enough tax is collected throughout the year. Installments act as an advance tax payment for the year.
These payments need to be paid on a regular basis, directly to the CRA, and are due on:
• March 15
• September 15
• June 15
• December 15
If you have a RRIF (Registered Retirement Income Fund), the government requires that minimum withdrawals be made by year-end. To avoid or reduce the amount you need to pay by installments, you can request your advisor to send a voluntary tax withholding to the CRA on your RRIF (Registered Retirement Income Fund) minimum payments. Sharing your most recent tax return with our team also helps us to keep your tax planning on track, ensuring withholding amounts match your income. (https://www.canada.ca/en/revenue-agency/services/payments/payments-cra/individual-payments/income-tax-instalments.html)
The Simple Way to Determine your Target Asset Allocation
From the Desk of Stephen Choi
• Financial Advisor Associate, Manulife Wealth Inc.
For an investor, one of the most important determinants of portfolio risk and return expectations is the asset allocation. Asset allocation is the investment strategy of dividing your portfolio among different asset classes, such as the stock market (stocks, mutual funds, ETFs), fixed income (GICs, bonds), and cash or cash equivalents.
The goal of your asset allocation is to balance risk and reward by adjusting the proportions of each asset class to align with the investor’s financial goals, risk tolerance, and investment time horizon. Ambitious financial goals, higher risk tolerance, and a longer time horizon tend to reflect a more aggressive allocation with more stock market exposure. On the other hand, easily achievable financial goals, lower risk tolerance, and a shorter time horizon tend to reflect a more conservative allocation, with a focus on fixed income and cash for safety.
With so many factors at play, it can be difficult to determine what asset allocation you should be targeting for your portfolio. This is where the “100 Minus Your Age Rule” or its modern equivalent, “120 Minus Your Age Rule” can help provide a baseline.
100 Minus Your Age Rule
The “100 Minus Your Age Rule” is a simple investment guideline that suggests subtracting your age from 100 to determine the percentage of your portfolio that should be invested in riskier assets like equities (stock market). The remainder is allocated to lower-risk assets like bonds, GICs, or high interest savings. This rule is based upon the notion that younger investors can tolerate more risk and volatility, while older investors should prioritize capital preservation and become more conservative as they age.
120 Minus Your Age Rule
While the “100 Minus Your Age Rule” is the traditional approach, many critics have come out in favour of an amended version called “120 Minus Your Age Rule”. This version of the rule is more aggressive as it will always allocate more to the riskier allocation than its conservative predecessor.
For example, a 30-year old would have a 90% allocation to the stock market, versus, a 70% allocation to the stock market with traditional “100 Minus Your Age Rule”.
Takeaway
While either of these rules provides a baseline recommendation for your target asset allocation based on your age, many additional factors are important for determining the right asset allocation for your goals. Everyone has unique circumstances that should be accounted for in your investment strategy and asset allocation.
Disclosures
Investing involves risks, including the potential loss of principal. Financial markets are volatile and can fluctuate significantly in response to company, industry, political, regulatory, market, or economic developments. This material was prepared solely for informational purposes and does not take into account the suitability, investment objectives, financial situation, or particular needs of any specific person.
All overviews and commentary are intended to be general in nature and for current interest. While helpful, these overviews are no substitute for professional tax, investment or legal advice. Manulife Wealth Inc. and/or Manulife Wealth Insurance Services Inc. (“Manulife Wealth”) makes no representation or warranty, express or implied, as to the accuracy, completeness or correctness of the information contained in this publication.
This publication does not constitute a recommendation, professional advice, an offer or an invitation by or on behalf of Manulife Wealth to any person to buy or sell any security or adopt any investment approach. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment. Diversification or asset allocation doesn’t guarantee a profit or protect against the risk of loss in any market. Past performance does not guarantee future results.
