Panacea Financial Ltd. would like your clients’ bankrupt investments, their illiquid securities, worthless capital and lost loans.

The Calgary-based firm is on a mission to help Canadians get the tax benefits they have coming to them. By purchasing investments that have gone “off the rails” for $1 and providing documentation of the transactions, Panacea enables investors to crystallize capital losses and apply them against capital gains under certain circumstances.

Paul Cairns, president of Panacea, says many people think that, because an investment is literally worthless, they can write down its value as zero on their tax forms and realize tax losses for the full amount. Unfortunately, it’s not that simple. Investors have to show evidence of value and putting “zero” on your account statements doesn’t cut it with the Canada Revenue Agency.

“When you can’t get the evidence or it will take too long to get it or it will be too expensive and you’re stuck in a situation where you can’t sell it, Panacea [comes] to the rescue,” Cairns says. “You get a purchase and sale agreement between us, the buyer, and you, the holders. That’s iron-clad evidence to the CRA of that value.”

Cairns describes Panacea’s offering as a service of convenience. Obtaining the documentation required can be done by individual clients, but it can often be cumbersome and time consuming. He or she would have to find an arm’s-length buyer for the transaction, see a lawyer and put all the papers together.

Panacea charges 2% of the original invested value to take these investments off investors’ hands. For example, if somebody made a $10,000 investment in stock that they know is now worthless, Panacea will charge $200 to buy it from you.

The client can carry one-half of the capital loss on the investment — the difference between its adjusted cost base and proceeds of disposition to Panacea — back three years or forward indefinitely to shelter taxable capital gains in those taxation years.

Cairns says it doesn’t matter when an investor made the original investment. It could have been decades ago, but Panacea can help provided the investor has yet to crystallize the loss.

“It’s not what investment mistakes have you made in the last little while, it’s what investment mistakes have you made in your life and you haven’t realized the losses,” says Cairns, who worked previously in investment banking with Stephen Avenue Securities Inc., a full-service brokerage firm in Calgary, before starting Panacea in March. The firm has four employees.

Panacea also offers the same buy-back service for RRSP accounts. Cairns says he realizes many people might question why this would be offered, considering there are no capital gains taxes to pay in a registered account and capital losses are useless. But if the only investment in an RRSP account is a worthless one, investors still have to pay the annual registration fee of about $110 — sometimes their firms will do it instead — and the account can’t be closed until the investment has been deregistered.

Panacea charges $51 every time it does this; it switches from the percentage-based model because nobody is getting a big tax benefit in this instance. The benefit for Panacea is that it flags the names of companies that have become worthless. Cairns can then set out to find shareholders in those companies and offer his tax-saving services to them.

Tracey Watson, president of Balanced Bookkeeping Accounting Services, a Calgary-based accounting firm, says too many investors simply ignore their dead investments.

“I go through my clients’ trading summaries and there are often those two or three stocks you see sitting there that have no market value. I say, ‘What are these? Should they be off your portfolio? Are you going to use them for wallpaper?’.”

Watson says the worthless stocks have some value if the capital losses can be used, but too many investors figure they can’t do anything with them.

“They write them off in their minds and some try to write them off on their taxes. Where’s the proof?” she says. “Investors look to see what’s making money, not what’s dead or hasn’t done anything for the past three or four years.”

Cairns notes that there’s “a big psychological problem we’re running up against with people being embarrassed or ashamed about investment mistakes they’ve made in the past. We’re telling them, ‘You’re not alone, everybody makes investment mistakes. Let’s not compound the mistake by letting ego or embarrassment get in the way of potentially getting these tax dollars back’.” IE