During a significant market downturn, Michael, a 45-year-old investor, sees his portfolio drop from $800,000 to $650,000. He holds various equity funds, including a Canadian large-cap fund (current value $150,000, ACB $200,000) and a U.S. technology fund (current value $120,000, ACB $160,000). Michael intends to hold these assets long-term but is concerned about the unrealized losses. If Michael is in the 30% marginal tax bracket, and assuming he incurs no transaction costs for this specific action, what is the immediate tax benefit of fully harvesting the losses on both funds?

Question: During a significant market downturn, Michael, a 45-year-old investor, sees his portfolio drop from $800,000 to $650,000. He holds various equity funds, including a Canadian large-cap fund (current value $150,000, ACB $200,000) and a U.S. technology fund (current value $120,000, ACB $160,000). Michael intends to hold these assets long-term but is concerned about the unrealized losses. If Michael is in the 30% marginal tax bracket, and assuming he incurs no transaction costs for this specific action, what is the immediate tax benefit of fully harvesting the losses on both funds?

Answer options:

• Approximately $21,000
• Approximately $14,000 ✅ Approximately $7,000
• Approximately $10,500

Correct answer: Approximately $7,000

Explanation: The total capital loss is ($200,000 - $150,000) + ($160,000 - $120,000) = $50,000 + $40,000 = $90,000. In Canada, only 50% of capital losses are deductible, making the deductible loss $45,000. At a 30% marginal tax rate, the tax saving is $45,000 * 0.30 = $13,500. Option C provides the closest correct answer.