S avvy investors who feel the value of a stock will go down can use a strategy know as a short sale.

Short sales have their own unique tax profiles and anyone considering a short sale should be aware of the tax consequences. What is the tax treatment of money paid on short sales of a stock that pays a dividend?

Would this be considered to be ordinary income, or would this payment be added to the adjusted cost base of the security?

If you sell a borrowed stock and the price of that stock falls, then you can buy back the stock for less than you paid for it and return it to the broker.

In this scenario the amount of the loss can be unlimited. As mentioned above,gains and losses from short selling stocks will be treated as straight income as opposed to capital gains or losses.

Short (finance) - Wikipedia

The CRA has two interpretation bulletins that cover the various issues with short sales here and here. When you borrow stocks from your brokerage firm, the broker will not receive any dividends during the period the stock has been lent to you. Therefore, you you must then pay the brokerage firm that dividend. For the individual, this amount cannot be deducted from computing income, but may be deducted to the extend you have other dividend income.

Canadian capital gains tax is one of the lowest you’ll ever pay

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News. To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter DeanPaleyCGACFP. Understand Your Pension Decision.

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