Canadian taxation – Capital gains or losses

1. CANADIAN TAXATION – CAPITAL GAINSOR LOSSES https://taxguru.in/income-tax/canadian-taxation-capital-gains-losses.html With a huge influx of Indian residents into Canada and its open arms to encourage more qualified ones to merge there from India or other countries, the most frequent questions pertain to capital gains or losses related to Canadian taxation. It is time to learn it from Canada Revenue Agency, the taxation arm of the Canadian government. Relevant reference is given from the web site of above agency. It is a 48 pages booklet with clear directions towards understanding the conceptsthoroughly. Let us look at thebasics. What is a capitalgain? You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell theproperty. The term ‘’outlays and expenses’’ is defined asunder. Outlays and expenses – These are amounts that you incurred to sell a capital property. You can deduct outlays and expenses from your ‘’proceeds of disposition’’ when calculating your capital gain orloss. What are proceeds ofdisposition? Proceeds of disposition – This usually is the amount you received or will receive for your property. In most cases, it refers to the sale price of the property. This could also include compensation you received for property that has been destroyed, expropriated, or stolen-mostly from insurance or from government agencies, if one can presume. Naturally, one does raise the question of capitalloss. Capital loss – You have a capital loss when you sell, or are considered to have sold, a capital property for less than the total of its adjusted cost base and the outlays and expenses incurred to sell theproperty. What is the adjusted costbase? Adjusted cost base (ACB) – This is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees. The cost of a capital property is its actual or deemed cost, depending on the type of property and how you acquired it. It also includes capital expenditures, such as the cost of additions and improvementstotheproperty.Youcannotaddcurrentexpenses,suchasmaintenanceandrepaircosts,tothe

2. cost base of aproperty. If you have a capital loss in 2021, you can use it to reduce any capital gains you had in the year, to a balance of zero. If your capital losses are more than your capital gains, you may have a net capital loss for the year. Generally, you can apply your net capital losses to taxable capital gains of the 3 preceding years and to taxable capital gains of any futureyears. You will need information from your records or supporting documents to calculate your capital gains or capital losses for theyear. Informative website from Canadian taxation is asunder: https://www.canada.ca/en/revenue-agency/services/tax/individuals/topics/about-your-tax-return/tax- return/completing-a-tax-return/deductions-credits-expenses/line-25400-capital-gains-deduction/what-deduction- limit.html All our discussions have the base in above and other websites run by Canadian taxagency. Who is eligible to get capitalgains? Usually, you have a capital gain or loss when you sell or are considered to have sold capital property. The following are examples of cases where you are considered to have sold capitalproperty: You exchange one property foranother You give property (other than cash) as agift Shares or other securities in your name areconverted You settle or cancel a debt owed toyou You transfer certain property to atrust Your property isexpropriated Your property isstolen Your property isdestroyed An option that you hold to buy or sell propertyexpires A corporation redeems or cancels shares or other securities that you hold (you will usually be considered to have received a dividend, the amount of which will be shown on a T5slip) You change all or part of the property’suse You leaveCanada The owner of the capital property passesaway What happens if you have a capitalgain? If you have a capital gain, you may be able to do one of thefollowing: defer part of the capital gain by claiming areserve. reduce or offset all or a part of the gain by claiming a capital gaindeduction. How to claim capital gains deduction and in which cases can I claimit? You may be able to claim the capital gains deduction on taxable capital gains you have in 2021from: dispositions of qualified small business corporationshares dispositions of qualified farm or fishingproperty

3. a reserve brought into income in 2021, from either of theabove. What is areserve? I do sell a property, say $40,000 but I receive only $10,000, then this portion can also be considered as capital gain. Usually, a reserve allows you to report a portion of the capital gain in the year you receive the proceeds of disposition. Actual case study for betterunderstanding. In 2021, Mario sold 400 shares of XYZ Public Corporation of Canada for $6,500. He received the full proceeds at the time of the sale and paid a commission of $60. The ACB of the shares is $4,000. Mario calculates his capital gain asfollows: A -Proceeds ofdisposition B – Adjusted costbase C – Outlays and expenses ondisposition B+C Capital gains$6500-$4060= $6500 $4000 $60 $4060 $2440 Can the tax payer use the full $2440 as capitalgain? The stipulations from the instructions of Canada Revenue Agency are veryclear. Because only 1/2 of the capital gain is taxable, Mario completes Schedule 3 and reports $1,220 as his taxable capital gain on line 12700 of his income tax and benefitreturn. When you sell, or are considered to have sold, a capital property for less than its ACB plus the outlays and expenses incurred to sell the property, you have a capital loss. You can apply 1/2 of your capital losses against any taxable capital gains in theyear. The time to understand Schedule 3 to calculate capital gains/losses under various categories isnow. Lifetime capital gains exemption limit – For dispositions in 2021 of qualified small business corporation shares, the lifetime capital gains exemption (LCGE) limit has increased to$892,218. T1-2021 which leads a taxpayer towards calculation of capital gains/loss is dealtnow. Form T 1 is reproducedbelow: https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/5000-s3/5000-s3-21e.pdf Let us learn the nuances of thisform.

4. Schedule 3 has five numbered columns and is divided into several sections for reporting the disposition of different types of properties. Report each disposition in the appropriate section and make sure you provide the information requested in all columns. Complete the rest of the schedule to determine your taxable capital gain or your net capital loss. If you have a taxable capital gain, transfer the amount to line 12700 of your income tax and benefit return. If you have a net capital loss, see Chapter 5 for information on how you can apply theloss. Let us analyze line by line fromT1. General instructions at the beginning of theform. “Complete this schedule to report your taxable capital gains on line 12700 of your return. If you need more space, attach a separate sheet. Attach a copy of this schedule to your paper return. For more information about capital gains or losses, including business investment losses, see Guide T4037, Capital Gains. If you realized a gain on a disposition, you may be able to claim a capital gains deduction on line 25400 of your return. If you have capital gains or losses on your T5, T5013, T4PS, and T3 information slips, report them on line 17400 or line 17600 of thisschedule.” The form consists of 5 numbered columns asunder: Property type (1) Year of acquisition (2) Proceeds of disposition (3) Adjusted cost base (4) Outlays and expenses (from dispositions) (5) Gain (or loss) (column 2 minus columns 3 and4) What are the property types? (Every one of the property types would invariably cover those 5 columns indicated above) Qualified small business corporation shares Number Name of corp. and class of shares Gain (orloss) Qualified farm or fishing property Address or legal description Prov./Terr. Gain (orloss) Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares, and other shares. Number Name of corp. and class ofshares Gain (orloss) Real estate, depreciable property, and other properties (see the next page for principalresidence) Address or legal descriptionProv./Terr. Gain (orloss) Bonds, debentures, promissory notes, and other similar properties Face value Maturity date Name ofissue Gain (orloss) Other mortgage foreclosures and conditional sales repossessions Address or legal descriptionProv/Terr. Gain (orloss) Personal-use property (see the next page for principal residence) (Provide fulldescription)

5. Gain (orloss) 8. Listed personal property (LPP) (LPP losses can only be applied against LPPgains) (Provide fulldescription) Gain (orloss) Add lines 1 to 9. Total of gains (or losses) of qualified properties and other properties=……. The form ends with the following sentence (line22). Taxable capital gains (or net capital loss) in 2021,19900= The following web site explains in details every one of the above noted property type and how to deal with capitalgains/losses. What about foreign currencies which swing with time and if held by atax-payer? Foreign exchange gains or losses from capital transactions of foreign currencies (that is money) are consideredto be capital gains or losses. However, you only have to report the amount of your net gain or loss for the year that is more than $200. If the net amount is $200 or less, there is no capital gain or loss and you do not have to report it on your income tax and benefitreturn. What about capital gains in case of corporationtax? Form given below narrates thesteps. https://www.canada.ca/content/dam/cra-arc/formspubs/pbg/t2sch6/t2sch6-21e.pdf Understanding the form leads asunder. Summary of Dispositions of Capital Property (2011 and later taxyears) Corporation’s name business number Tax yearend. Beginning instructions are very clear andapt. “Use this schedule if your corporation disposed of (actual or deemed) capital property or claimed an allowable business investment loss (ABIL), or both, in the tax year. • All legislative references are to the federal Income Tax Act. • Also use this schedule to make a designation under paragraph 111(4)(e) if control of the corporation has been acquired by a person or a group of persons. • For more information, see the section called “Schedule 6, Summary of Dispositions of Capital Property” in the T2 Corporation Income Tax Guide. • If you need more space, attach additionalschedules.” Part 1 –Shares Part 2 – Real estate (Do not include losses on depreciableproperty) Part 3 –Bonds Part 4 – Other properties (Do not include losses on depreciableproperty Part 5 – Personal-use property (Do not include listed personalproperty) Part 6 – Listed personalproperty

6. Part 7 – Property qualifying for and resulting in an allowable business investmentloss Part 8 – Capital gains orlosses Part 9 – Taxable capital gains and total capitalloss. The common thread adorning the above heads reads asunder: Description ofproperty. Date of acquisitionYYYYMMDD Proceeds ofdisposition Adjusted costbase Outlays and expenses fromdisposition Gain only (column 3 minus columns 4 and 5; if negative, enter“0”) In case of shares, details of number of shares, name of the corporation, class of shares along with other above narrated details set the gain (orloss). For bonds, wehave: Face value ofbonds Maturity dateYYYYMMDD 3 Name of bondissuer 4 Date of acquisitionYYYYMMDD 5 Proceeds ofdisposition Adjusted costbase Outlays and expenses fromdisposition Gain (or loss) (column 5 minus columns 6 and7) What about partnershipforms? Guide for the partnership information return is available under T5013forms. Conclusion Canada, the pinnacle of any professional young man/woman entices them to emigrate legally, earn a decent income, and pay the taxes due to the citizen or permanent resident as the case may be. But the caveat is the penalty, fine or interest for non-adherence to submission of tax forms reach a large scale of punishment. This article follows its core policy of informing its readers the finer aspects of the Western society from a legal/taxation angle with the resultant fine for failure to live up to the expectation as a decentcitizen. Yes, reasonably I have covered capital gain/loss and how to calculate, and file theforms.

7. A C.P.A. will invariably use a good software, track the records, and help any taxpayer at point of need. Yes, please avoid playing with your tax forms but use the best services of a C.P.A., the most qualified professional to handle thiswork. Yes, it is a request from a fellow C.P.A., the undersigned writer of thisarticle. Disclaimer: The contents of this article are for information purposes only and do not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting because of the above write up. The possibility of other views on the subject matter cannot be ruled out. By use of the said information, you agree that Author/Tax Guru is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors, or any kind of omissions in `this piece of information for any action taken thereof. This is not any kind of advertisement or solicitation of work by aprofessional.