The RRSP Fix That Cost a Bracebridge Couple Their Tax Loss

The situation

Minh ran an independent sales consultancy out of Bracebridge, working on a self-employed basis with a roster of manufacturing clients across the region. His spouse, Linh, worked as a software developer for a mid-size employer that offered a group RRSP with automatic payroll contributions. The couple held a joint non-registered investment account they had built up over a decade, mostly index funds and a handful of individual stocks.

That year, Minh sold a small commercial property he had used for his consulting business, realizing a capital gain of roughly $260,000. To manage the tax hit, he did what many investors do before year-end: he sold a concentrated stock position that had lost value, crystallizing a capital loss of about $230,000 to offset the gain. On paper, the two transactions nearly cancelled out. The plan was straightforward tax-loss selling, a routine and entirely legitimate strategy under the Income Tax Act — sell an investment sitting at a loss, use that loss to reduce a taxable capital gain realized the same year.

What Minh did not know was that, at almost the same time, a payroll error on Linh's side was being corrected in a way that would undo part of his plan.

What the reassessment found

Earlier that year, Linh had made a lump-sum contribution to her RRSP using room freed up after the couple downsized their previous home. A few months later, a mid-year raise triggered an automatic increase in her payroll RRSP contributions, a default setting she had never turned off. Nobody at the employer's benefits office cross-checked the increase against the deduction room Linh had already used with her earlier lump sum, so contributions kept flowing in past her limit.

By late summer, Linh was sitting on an RRSP overcontribution of several tens of thousands of dollars — enough to trigger a monthly tax under the Income Tax Act on excess RRSP amounts. Once the error was flagged, the employer's payroll and benefits coordinator, a person named Rejean, worked with Linh to correct it at source: stop the ongoing over-contributions, and reinvest the withdrawn excess into the plan's standard default fund rather than leave it sitting in cash. That default fund happened to hold units tracking the same sector index as the individual stock Minh had just sold at a loss in their joint account.

The purchase went through within three weeks of Minh's sale. Neither Minh nor Linh thought anything of it — one was a personal brokerage account, the other a workplace RRSP, and from where they sat, they were unrelated events handled by unrelated people. But the Income Tax Act does not see it that way. The superficial loss rule denies a capital loss when the taxpayer, or a person affiliated with them — including a spouse — acquires an identical or nearly identical property within a window spanning 30 days before and 30 days after the sale, and still holds that property at the end of the window. An RRSP is treated as belonging to its holder for this purpose. Linh's RRSP counted.

Roughly a year later, a CRA reassessment arrived. It denied the entire $230,000 capital loss Minh had claimed, on the basis that identical securities had been reacquired inside an affiliated account within the restricted period. Reinstating the full loss meant reinstating the full taxable capital gain too — an extra $115,000 of taxable income for the year, plus arrears interest that had been accumulating since the original filing. The number on the notice was in the range of $55,000 in additional tax and interest, on top of whatever they had already paid.

What we did

1. Reconstructed the full transaction timeline. We pulled trade confirmations from Minh's brokerage account and contribution records from Linh's group RRSP to establish the exact dates, share counts, and dollar values on both sides. This mattered because the superficial loss rule is often applied more broadly than it should be — CRA reviewers sometimes treat any reacquisition inside the window as fatal to the whole loss, when the rule is actually designed to deny the loss only to the extent that identical property was reacquired and still held.
2. Quantified the actual overlap. Of the roughly $230,000 in shares Minh sold, we calculated that the RRSP's replacement purchase, funded by the corrected overcontribution, accounted for only about $85,000 worth of economically identical exposure. The remaining $145,000 of the position had no matching reacquisition anywhere in the couple's accounts during the restricted window.
3. Contacted Linh's employer to document the payroll correction. Rejean provided a written record confirming when the overcontribution was identified, when it was withdrawn, and when the corrective reinvestment occurred. This established the RRSP purchase as a documented, dated transaction rather than something CRA had to infer, and made clear it was a mechanical fix to an unrelated payroll error rather than any coordinated investment decision.
4. Filed a formal objection to the reassessment. We argued that denying the full $230,000 loss overstated what the superficial loss rule actually requires, and asked the CRA appeals division to apply the denial only to the $85,000 portion that was genuinely still held in an affiliated account at the end of the 61-day window.
5. Negotiated the scope of the denial rather than the principle. CRA's appeals officer was not persuaded to withdraw the reassessment entirely — the rule had clearly been triggered, and no amount of documentation changed that. The negotiation instead focused on getting the dollar amount right: denying only the matched, still-held portion of the position, consistent with how the rule is meant to operate.

The outcome

CRA agreed to revise the reassessment. Instead of denying the full $230,000 capital loss, it denied roughly $85,000 — the portion matching the shares Linh's RRSP had acquired and still held at the end of the restricted period. The remaining $145,000 of Minh's loss stood and continued to offset his capital gain from the property sale as originally filed.

The revised numbers meant a taxable capital gain add-back of about $42,500 instead of $115,000, and additional tax and interest closer to $19,000 rather than the original $55,000 assessment — a real saving, but not a clean win. Minh still owed tax he had not expected to owe, on a loss he had believed was fully valid when he filed. CRA's position that the rule had been triggered at all was never overturned; the dispute was won on scope, not on principle. Both sides ended the file with something they could defend: CRA preserved the integrity of the superficial loss rule, and the couple avoided paying tax on a much larger disallowed amount than the facts actually supported.

Going forward, Linh's employer adjusted the default fund used for corrective RRSP reinvestments so that future payroll fixes would not route into holdings that might overlap with an employee's personal investments without any flag being raised. That change came after the fact, but it closed the specific gap that had caused the problem.

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