Tax-Loss Harvesting with XEQT: Turn Market Dips into Tax Savings

Market dips are never fun to watch. Your portfolio goes red, the news turns gloomy, and every instinct says to look away and wait for it to pass.

But here’s something most Canadian investors don’t realize: if you hold XEQT in a non-registered (taxable) account, market dips can actually save you money on taxes. The strategy is called tax-loss harvesting, and once you understand how it works, you might start looking forward to market pullbacks – just a little.

I first used this strategy during a dip in late 2024, and it saved me over $600 on my tax bill. Let me walk you through exactly how it works, step by step.

1. What Is Tax-Loss Harvesting?

Tax-loss harvesting is the practice of selling an investment that has dropped in value to realize a capital loss, then using that loss to offset capital gains on your taxes.

In plain English: if you bought XEQT at $30 per share and it’s now trading at $26, you have an “unrealized” loss of $4 per share. That loss only exists on paper – it doesn’t affect your taxes at all. But if you sell those shares, the loss becomes “realized,” and you can use it to reduce your tax bill.

Here’s the key insight: after selling, you immediately buy a similar (but not identical) ETF so you stay fully invested in the market. You capture the tax benefit without actually leaving the market.

It’s like getting a tax refund for a dip that would have happened whether you harvested or not.

2. How Capital Gains Tax Works in Canada (Quick Refresher)

Before diving into the strategy, let’s make sure the tax fundamentals are clear.

In Canada, when you sell an investment for more than you paid for it, you have a capital gain. As of 2024, the capital gains inclusion rate for individuals is:

• 50% inclusion on the first $250,000 of capital gains per year
• 66.7% inclusion on capital gains above $250,000

For most retail investors, the 50% rate applies. That means if you have a $10,000 capital gain, you add $5,000 to your taxable income for the year.

Capital losses can offset capital gains dollar for dollar. If you have $10,000 in gains and $4,000 in losses, you only pay tax on $6,000 of net gains (with the 50% inclusion rate, only $3,000 gets added to income).

If your losses exceed your gains in a given year, you can:

• Carry the loss back up to 3 years to offset past gains
• Carry the loss forward indefinitely to offset future gains

This is what makes tax-loss harvesting so powerful. You’re not just saving taxes this year – you’re building a stockpile of losses you can use whenever you need them.

3. The Superficial Loss Rule: The One Rule You Cannot Break

This is the part that trips up most people, so pay close attention.

The CRA has a rule specifically designed to prevent people from selling an investment for a tax loss and immediately buying it back. It’s called the superficial loss rule, and here’s how it works:

A capital loss is denied if you (or an “affiliated person”) buy the same or identical property within 30 days before or after the sale.

The “30-day window” runs in both directions:

• 30 days before the sale
• The day of the sale itself
• 30 days after the sale

That’s a total 61-day window where you cannot hold the identical property.

What Counts as “Identical Property”?

• XEQT is identical to XEQT. If you sell XEQT and buy XEQT back within 30 days, the loss is denied.
• XEQT is not identical to VEQT, ZEQT, or other all-equity ETFs, even though they hold similar stocks. Different fund, different manager, different ticker – not identical.

Who is an “Affiliated Person”?

• Your spouse or common-law partner
• A corporation you control
• A trust where you or your spouse are beneficiaries

This means if you sell XEQT for a loss, your spouse cannot buy XEQT within that 30-day window either, or the loss is denied.

4. Step-by-Step: How to Tax-Loss Harvest with XEQT

Here’s the exact process I follow. It’s simpler than it sounds.

Step 1: Identify the Loss

Check your non-registered account. If your XEQT shares are currently worth less than what you paid for them (your “adjusted cost base” or ACB), you have a potential loss to harvest.

On Wealthsimple, you can see your book value (cost) vs. market value directly in the app. The difference is your unrealized gain or loss.

Step 2: Sell Your XEQT Shares

Sell all (or a portion of) your XEQT shares that are sitting at a loss. On Wealthsimple, this is a straightforward sell order.

Step 3: Immediately Buy a Substitute ETF

On the same day or as soon as possible, buy a similar all-equity ETF to maintain your market exposure. You don’t want to be sitting in cash while the market potentially recovers.

Good substitute ETFs for XEQT include:

My preferred substitute is VEQT because it’s the most well-known alternative and extremely similar in composition to XEQT. The 0.04% MER difference is negligible for a 30-day hold.

Step 4: Wait 30 Days

Mark your calendar. You must hold the substitute ETF for at least 31 days from the date you sold XEQT to be safe (the 30-day rule counts the sale date).

During this time, your portfolio is still fully invested in a globally diversified all-equity ETF. You’re not missing out on any market returns.

Step 5: Switch Back to XEQT (Optional)

After 31 days, if you prefer XEQT over the substitute, sell the substitute and buy XEQT back. If you’re happy with the substitute, you can just stay in it.

Personally, I switch back to XEQT because I like having all my positions in the same ETF for simplicity. But there’s no financial reason you must switch back.

Step 6: Claim the Loss on Your Tax Return

When you file your taxes, report the capital loss on Schedule 3. If you use Wealthsimple Tax, the information from your T5008 slip (provided by your brokerage) makes this straightforward.

5. A Real Example with Dollar Amounts

Let’s make this concrete with a realistic scenario.

The Setup:

• You bought 500 shares of XEQT at $32.00 each in your non-registered account
• Total cost: $16,000
• The market drops and XEQT is now trading at $28.50
• Current value: $14,250
• Unrealized loss: $1,750

The Harvest:

1. You sell all 500 shares of XEQT at $28.50 = $14,250
2. You realize a capital loss of $1,750
3. Immediately, you buy ~$14,250 worth of VEQT (about 500 shares at ~$28.50)
4. You wait 31 days
5. You sell VEQT and buy back XEQT (or keep VEQT)

The Tax Savings:

Suppose you also sold some other investment earlier in the year for a $5,000 capital gain. Without tax-loss harvesting:

• Taxable capital gain: $5,000 x 50% = $2,500 added to income
• At a 30% marginal tax rate: $750 in tax

With tax-loss harvesting:

• Net capital gain: $5,000 - $1,750 = $3,250
• Taxable capital gain: $3,250 x 50% = $1,625 added to income
• At a 30% marginal tax rate: $487.50 in tax

Tax savings: $262.50

And if you’re in a higher tax bracket (40-50%), the savings are even larger – potentially $350 to $437.50 in this example.

6. When to Tax-Loss Harvest

There are a few optimal windows for tax-loss harvesting:

During Market Corrections

Any time the market drops significantly (5-10%+), check your non-registered account for harvestable losses. Major corrections don’t happen every day, so take advantage when they occur.

Year-End (November/December)

Many Canadian investors do a “tax-loss selling” sweep in November or December to realize losses before the tax year ends. This is so common that it can actually temporarily depress prices of certain stocks and ETFs – which means even more harvesting opportunities.

After Tariff/Geopolitical Shocks

As we’ve seen with the 2025-2026 trade tensions, geopolitical events can create short-term market drops. These are prime harvesting opportunities because the losses are often temporary.

Anytime You Have Capital Gains to Offset

If you sold a property, exercised stock options, or realized gains from selling other investments, check if you have harvestable losses in your XEQT position. The more gains you need to offset, the more valuable the harvest becomes.

7. Common Mistakes to Avoid

Tax-loss harvesting is straightforward, but there are pitfalls:

Mistake 1: Buying XEQT Back Too Soon

The most common error. If you sell XEQT and buy it back within 30 days, the CRA denies the entire loss. Set a calendar reminder and don’t jump the gun.

Mistake 2: Forgetting About Spousal Accounts

If your spouse buys XEQT in their account within the 30-day window, your loss is denied. Coordinate with your partner.

Mistake 3: Forgetting About Automatic Purchases

If you have recurring automatic XEQT purchases set up on Wealthsimple, pause them before you sell. An automatic buy during the 30-day window would trigger the superficial loss rule. This is the one I almost messed up the first time.

Mistake 4: Harvesting in Registered Accounts

Selling at a loss inside a TFSA or RRSP does nothing for your taxes. In fact, selling at a loss in a TFSA is strictly detrimental because you permanently lose that contribution room for the lost amount. Only harvest in non-registered accounts.

Mistake 5: Letting Tax Savings Drive Investment Decisions

Tax-loss harvesting should be an opportunistic bonus, not the core of your strategy. Don’t sell a winning position just because you think you might get to harvest a loss later. And don’t hold off on investing because you’re “waiting for a dip to harvest.”

Mistake 6: Ignoring Trading Costs

On commission-free platforms like Wealthsimple, this isn’t an issue. But if you’re using a platform that charges trading commissions, make sure the tax savings exceed the cost of the extra trades (sell XEQT, buy substitute, sell substitute, buy XEQT = four trades).

8. Is Tax-Loss Harvesting Worth It for Small Portfolios?

Honest answer: it depends.

If you have a small non-registered account (under $5,000), the potential tax savings from harvesting might only be $20-50. That’s still free money, but it requires effort and attention to the 30-day rule.

Here’s a rough guide:

For portfolios over $10,000 in non-registered accounts, tax-loss harvesting during a meaningful market dip is almost always worth the 15 minutes of effort.

9. Tax-Loss Harvesting Checklist

Before you execute a tax-loss harvest, run through this checklist:

1. Confirm the account type – non-registered accounts ONLY
2. Calculate the loss – is it worth harvesting? (Generally yes if over $500)
3. Choose your substitute ETF – VEQT or ZEQT are the best XEQT alternatives
4. Pause any automatic XEQT purchases for the next 31 days
5. Coordinate with your spouse – make sure they won’t buy XEQT in the window
6. Sell XEQT and note the settlement date
7. Buy substitute ETF on the same day or next business day
8. Set a calendar reminder for 31 days from the sale
9. After 31 days, decide whether to switch back to XEQT or stay with the substitute
10. Re-enable automatic purchases after you’re back in your preferred ETF
11. Track the loss for your tax return – your brokerage will issue a T5008

10. Advanced Considerations

Carrying Losses Forward

If you don’t have capital gains to offset this year, don’t worry. Capital losses can be carried forward indefinitely in Canada. You might harvest a loss in 2026 and not use it until you sell a property in 2031. The loss sits there waiting until you need it.

Carrying Losses Back

You can also carry a capital loss back up to 3 years to recover taxes paid on past capital gains. If you had gains in 2023, 2024, or 2025, a loss realized in 2026 can be applied against them by filing a T1A form.

Wash Sale vs. Superficial Loss

If you’re familiar with US tax rules, you might have heard of “wash sales.” Canada’s superficial loss rule is similar but not identical. The key Canadian-specific elements are the affiliated person rules and the fact that the denied loss gets added to the ACB of the replacement property (so it’s not permanently lost – just deferred if you buy back the same security too soon).

Multiple Lots at Different Prices

If you bought XEQT at different times and prices, your ACB is the weighted average of all purchases. You can’t cherry-pick specific lots to sell in Canada the way you can in the US. This is important for calculating your actual loss amount.

The Bottom Line

Tax-loss harvesting is one of the few completely legal, completely free ways to reduce your tax bill as a Canadian investor. It doesn’t change your investment strategy. It doesn’t require market timing. It simply turns an unrealized loss into a realized tax benefit while keeping you fully invested.

For XEQT investors in non-registered accounts, the process is particularly clean:

1. Sell XEQT at a loss
2. Buy VEQT or ZEQT immediately
3. Wait 31 days
4. Switch back if you want
5. Claim the loss on your taxes

The next time the market dips and your XEQT position goes red, don’t just feel bad about it. Put that loss to work for you.