A portfolio manager is reviewing a non-registered account at year-end. The client has realized capital gains of $25,000 from successful investments. However, another segment of the portfolio holds declining technology stocks with unrealized capital losses of $30,000. To optimize the client's tax situation, the portfolio manager initiates the sale of these technology stocks. What is the impact of this strategy on the client's current year's tax liability?

Question: A portfolio manager is reviewing a non-registered account at year-end. The client has realized capital gains of $25,000 from successful investments. However, another segment of the portfolio holds declining technology stocks with unrealized capital losses of $30,000. To optimize the client's tax situation, the portfolio manager initiates the sale of these technology stocks. What is the impact of this strategy on the client's current year's tax liability?

Answer options: ✅ The $5,000 net capital loss can be carried forward indefinitely to offset future capital gains.

• The client will still pay tax on the full $25,000 capital gain, as losses cannot offset gains.
• The capital losses will reduce regular income by up to $3,000 in the current year.
• The $30,000 capital loss will directly reduce interest and dividend income.

Correct answer: The $5,000 net capital loss can be carried forward indefinitely to offset future capital gains.

Explanation: By realizing the $30,000 capital loss, the client can offset their $25,000 capital gain, resulting in a net capital loss of $5,000. This net capital loss cannot be used to reduce other types of income in the current year, but it can be carried forward indefinitely to offset future capital gains.