Common Tax Questions Series 6 – Capital Gains And Losses

by Guest on November 21, 2011

                                         If you are an investor it is important for you to know about capital gains and capital losses, and how they affect your taxes.  Check out these commonly asked questions to find out more about how capital gains will affect you.

Can you explain capital gains tax?

A capital gain is the appreciation in value of a capital property, when sold from the date of purchase. Basically, if you bought a stock for $10 and you sell it for $15, you would have a $5 capital gain. A capital loss would be the opposite; a capital property that loses value when sold from the date of purchase.

If you have any capital gains on investments or investment properties, 50% of the gain is taxable. This amount is added to your income and then your personal tax rate is applied to the total income.

If you have any capital losses from previous years, you can apply them against your capital gains to reduce your tax liability.

I have capital losses going back over several years, but have not declared them because I do not have capital gains during that period. How should I record them? They occurred at different times and amounts for various investments that usually ended up being no longer traded.

You should be reporting your capital losses every year you incur them. The Canada Revenue Agency will then keep track of them and will state them for you every year on your Notice of Assessment. You are able to file an adjustment to your return to add the capital losses to the appropriate year. You will need to complete a T1-Adjustment Form (http://www.cra-arc.gc.ca/E/pbg/tf/t1-adj/README.html) for each year you need to correct.

 

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{ 2 comments… read them below or add one }

allan Schwartz May 19, 2012 at 2:54 pm

4 family members (siblings) are equal (25% shareholders) in a corporation whose sole asset is a piece of commercial rental property. The adjusted cost base of the property for the shareholders was 1.1M (or 275K each). A current market appraisal shows the value of the property at 1.5M (for outside market sale purposes).

If one of the 4 shareholders wishes to acquire the remaining 75% interest
in the property from his or her 3 siblings and these 3 siblings are prepared to accept a price below FMV (say $1.2M) or 400K each… besides the obvious capital gains (from 275K to 300K) would there be any other capital gains tax ramifications? In other words, can parties sell an asset for below fair market value and is a penalty involved (by CRA) to do so?

Suppose the siblings agreed to sell it for what their adjusted cost base was, ie: 275K.. is that permissible or are there penalties involved?

I do know that capital cost allowance recovery will play a role in some manner

Thanks for your reply

Pam May 22, 2012 at 10:43 pm

I asked an H & R Block Corporate Specialist, and this is the info they gave me:
“To calculate your capital gain: Capital gain = sale price (net legal fee and
commission) – cost. Each of you will get ¼ of the capital gain. After the
exemption base, 50% of the capital gain is taxable. Your sale price has to
be at Fair Market Value if your siblings want to do the deemed disposition.”

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