The Volatile Spring Created a Tax-Loss Harvesting Window. It’s Still Open.
THE BRIEF
- The sell-off created losses worth harvesting. Canadian non-registered portfolios that held through the February-March decline may be sitting on unrealized losses in specific positions, particularly in U.S. tech-weighted equity holdings.
- Capital gains inclusion rate confirmed at 50% for 2026. The previously proposed two-thirds inclusion rate was cancelled. The planning environment is stable: gains above $250,000 for individuals remain at the 50% inclusion rate.
- TFSA room opened January 1. The 2026 TFSA dollar limit is $7,000, bringing cumulative room to $109,000 for those who have never contributed. Sheltering future gains from recovered positions is the logical next step after harvesting losses.
- The 30-day superficial loss rule applies. Selling a losing position and repurchasing the same security within 30 days — in any account, including a spouse’s — triggers the superficial loss rule and disallows the deduction.
- RRSP limit for 2026 is $33,810. Losses harvested now can reduce taxable income this year; RRSP contributions can reduce it further, compounding the planning benefit.
The Iran war’s most underappreciated financial consequence for Canadian investors may not be the oil price or the TSX move. It is the paper losses left in non-registered portfolios after seven weeks of volatility, now partially recovered but not fully, that represent a time-limited planning opportunity. Tax-loss harvesting works best when losses exist and a capital gain to offset is already in sight. Both conditions are present for many Canadian investors this spring.
What the Volatile Spring Created
The S&P 500 fell approximately 9% from its pre-war close of around 6,878 to its trough in mid-March before recovering. It has since clawed back roughly half that decline, sitting around 4% below its February 27 level as of this week. Many Canadian investors with U.S. equity exposure hold those positions in non-registered accounts. If specific securities within those accounts are still below their adjusted cost base, a harvesting opportunity exists right now that did not exist in January.
The key distinction is between portfolio-level performance and position-level performance. A portfolio that overall recovered may still contain individual positions, particularly in sectors that underperformed through the shock, such as technology and discretionary, that remain in loss territory. Those individual losses are the raw material for tax-loss harvesting regardless of what the broader account is doing.
The 2026 Rules: Stable Ground for Planning
The proposed increase to the capital gains inclusion rate, which would have raised the rate to two-thirds for gains above $250,000 for individuals, was cancelled. The 2026 inclusion rate is confirmed at 50% for all individuals. That means the planning environment is settled: half of any capital gain is included in income and taxed at the applicable marginal rate. Harvested losses offset that included amount dollar for dollar.
Losses can be applied against capital gains realized in the current year, carried back three years to offset prior-year gains, or carried forward indefinitely. For investors who triggered capital gains earlier in the year, whether from rebalancing into the energy rally or from selling positions ahead of the volatility, harvested losses can directly reduce this year’s tax bill.
The Superficial Loss Rule and the 30-Day Window
The most common mistake in executing a tax-loss harvest is triggering the superficial loss rule. If a taxpayer sells a security at a loss and repurchases the same or an identical security within 30 calendar days before or after the sale, in any account including a registered account or a spouse’s account, the CRA disallows the capital loss. The loss does not disappear: it is added to the adjusted cost base of the repurchased security. But the current-year deduction is lost.
The practical solution is to sell the losing position and replace it with a similar but not identical security for the 30-day window. An investor selling a U.S. large-cap equity ETF tracking the S&P 500 might temporarily hold a different broad market fund tracking a similar index. The exposure remains comparable; the specific security differs enough to satisfy the rule. After 30 days, the original position can be repurchased if desired.
TFSA and RRSP: The Sheltering Layer
Tax-loss harvesting is most powerful when paired with a plan to shelter future gains. The 2026 TFSA dollar limit is $7,000, added January 1. For Canadians who have never contributed, cumulative room now reaches $109,000. Recovered positions that are sold from a non-registered account and re-established inside a TFSA remove future capital gains from the tax equation entirely.
The 2026 RRSP dollar limit is $33,810, or 18% of 2025 earned income, whichever is lower. The contribution deadline for the 2025 tax year passed on March 2, 2026, but the 2026 contribution room is now in full effect. Investors who harvested losses this spring and have available RRSP room can compound the planning benefit by contributing before year-end, reducing taxable income from two directions simultaneously.
The spring’s volatility was disruptive for Canadian portfolios. The silver lining, available only to investors who act before positions recover further, is a legitimate tax planning window that did not exist three months ago.
Sources
Canada Revenue Agency (TFSA contribution limits, superficial loss rule), Morningstar Canada (2026 tax planning checklist), Taxes for Expats (capital gains inclusion rate 2026), Wealthsimple (capital gains Canada 2026), Statistics Canada (CPI February 2026), UBS / TheStreet (S&P 500 level estimates), BNN Bloomberg / Dale Jackson (RRSP/TFSA planning, March 2026)