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Personal Income Tax  ->  Filing Your Return  ->  Stocks, Bonds etc. - > Capital Gains and Losses

Capital Gains and Losses

Income Tax Act s. 3(b), 38(a), 248(1)

A capital gain or loss is the gain or loss resulting from the sale of property, such as stocks, bonds, art, stamp collections, real estate, and promissory notes.  Gains or losses from bad debts, foreign exchange and call and put options are also normally considered capital gains or losses.  Some assets are considered personal-use property, such as cottages, cars, boats, and furniture (unless these are business assets).  Some personal-use property is considered listed personal property (LPP), such as works of art, and stamp collections.  The gains and losses for personal-use property and LPP are calculated separately from gains and losses on other capital assets.  See our articles on Listed Personal Property and Personal-use Property for more information.

If income-producing property, or money which is used to purchase income-producing property, is transferred or loaned to a spouse, the income and capital gains from the property will normally be attributed back to the person giving the gift or loan.  The treatment is slightly different for transfers to a related minor.  See our article on Attribution Rules re Gifts, Transfers, or Loans to a Spouse or a Related Minor Child.

A loss on shares or debt may be considered a business investment loss instead of a capital loss, in certain circumstances.  See our link below to the article on business investment losses.

A taxable capital gain is 50% of a capital gain.  The capital gain or loss is calculated by deducting the original cost of the asset from the proceeds received on the sale of the asset.  Because only 50% of the gain is taxable, less tax is paid on capital gains than on income such as interest.

An allowable capital loss is 50% of a capital loss.  It can only be used to reduce or eliminate taxable capital gains, except in the year of a taxpayer's death or the immediately preceding year, when it can be used to reduce other income.  See our article on Capital Losses for more information about carrying these losses back or forward.

If you plan to sell shares at a loss and buy them back either before or after selling them, see our article on superficial losses to ensure that your loss isn't disallowed.

Capital gains and losses are recorded on Schedule 3 of the personal income tax return, by reporting the proceeds of disposition less the adjusted cost base.  When allowable capital losses exceed taxable capital gains in a year, the difference is the net capital loss for the year.

When a capital property is owned by more than 1 person, such as a taxpayer and spouse, the proceeds of sale would normally be allocated to each owner based on their percentage ownership.

When a Canadian controlled private corporation (CCPC) has a capital gain, the non-taxable portion of the capital gain can be paid out to shareholders as a capital dividend.

Capital gains can be reduced, deferred, or eliminated by:

    - $750,000 capital gains exemption - increased to $800,000 for 2014, then indexed for inflation

    - Principal residence exemption, which can also be used for a vacation home or cottage

    - Donating capital property instead of cash can eliminate capital gains or increase your donations limit

    - Capital gain reserve - you may be able to spread your capital gain over a number of years

    - Election to designate the amount of proceeds on donated capital property

    - The transfer of capital property to a spouse or spousal trust on death

1994 Capital Gains Election

Prior to 1994 there was a $100,000 capital gains exemption which could be used for all capital gains.  On February 22, 1994, the federal government announced that the exemption would no longer be available for capital property or eligible capital property sold after February 22, 1994.

A one-time election was made available to allow those who owned capital or eligible capital property at February 22, 1994, to report a capital gain on their 1994 tax return in order to take advantage of the unused portion of their $100,000 capital gains exemption.  The election was made on form T664, and you may have had to also complete forms T657, Calculation of Capital Gains Deduction on All Capital Property, and Form T936, Calculation of Cumulative Net Investment Loss (CNIL) to December 31, 1994.  It was possible that not all of the declared capital gain would be exempt, depending on the CNIL balance.

Once form T664 was completed for a real estate property, the new adjusted cost base was entered on the Capital Gains Election Supplementary page, in Chart B - Other Capital Properties.  When spouses completed this election for a jointly-owned property such as a vacation home or cottage, they would each have declared 50% of the capital gain, so the Chart B new adjusted cost base would be 50% of the new adjusted cost base for the property.

More information on the 1994 election is available in the 1994 Capital Gains Election Package (pdf).

TaxTips.ca Resources

Real Estate Sales - Are They Taxable? What About My Principal Residence?

Tax treatment of income from investments in call and put options

Try to earn your investment income (outside of RRSPs) at the lowest tax rate possible

Attribution Rules re Gifts, Transfers, or Loans to a Spouse or a Related Minor Child

Deemed Disposition of Property

Capital Losses - carry-back rules, inclusion rates (IR) for prior years

Non-Capital Losses

Transfer shares to an RRSP or TFSA, but not at a loss!

Business investment loss and allowable business investment loss (ABIL)

Tax treatment of income from different investments

Superficial losses

Worthless shares or debt

See the Canada Revenue Agency Capital Gains Guide T4037 for more information.

Tax Tip:  Only 50% of a capital gain is taxed, and the gain is not included in income until the item is sold, allowing you to compound your returns tax-free until you sell.

Revised: February 10, 2021

 

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