Let’s face it! Most Canadians probably find income taxes boring (unless of course, you’re an accountant!). But paying your income taxes is a necessary evil!
If you have sold stocks or other investments at a profit, you will have to pay the tax on your capital gains.
A Quick Note About Your RRSP or RRIF
If you have stocks or other investments inside of your RRSP or RRIF, any gains generated on those investments are not taxable. However, withdrawals are fully taxed at your marginal tax rate at the time you withdrew from the account.
Remember that the government wants you to save for your retirement using the RRSP and allows you to deduct deposits and allows your investments to grow tax-free … until you withdraw from the account: And hopefully in a lower tax bracket.
What About The TFSA?
Like an RRSP or RRIF, investment income in the TFSA will grow tax free. However, there are no tax consequences if you deposit or withdraw from the TFSA.
From here on, I will refer to the RRSP, RRIF, and TFSA collectively as registered accounts.
What Is A Capital Gain?
When you sell your stocks, in a non-registered account, for more than you paid for it, the difference between the selling price and purchase price (less commissions) is called a capital gain. In Canada, capital gains offer a tax advantage because only 50% of the net capital gains are taxable.
Notice the phrase net capital gains?
If you had capital losses in the tax year, you are required to offset them against your capital gains from the same tax year. If you have losses left over, you can use them against any net capital gains in the last three years or use them against any capital gains in the future. However, you cannot use capital gains against other income (interest, diviends, employment income etc.).
If you dispose of the shares of a qualified small business corporation or qualified farm property you can shield $750,000 of the gain from tax! ?In 2007 government in increased the lifetime capital gains exemption to $750,000.
Watch Out For Superficial Losses
If you’re frequently buying and selling stocks and you have losses, be aware that if you (or a person related to you), owned the same stock 30 days before or after you sold the shares, your loss will be denied. You should read my article on Superficial Losses for more on this.
Tax Tips For Capital Gains
- Maximize Tax Efficiency – Keep your capital gains generating investments outside of your registered accounts and your interest generating investments inside your registered accounts.
- Tax Loss Sell – If you have shares that have lost value at the end of the year, consider selling them to offset and capital gains. Be aware of the superficial loss rules.
Getting Help
If you have significant trades outside of your RRSP’s, a professional accountant will understand the implications of capital gains and can advise you on appropriate strategies to pay less tax.
Related Articles
- Applying Capital Losses Against Capital Gains
- Take Advantage of Your Capital Losses
- Canadian Stock Market Gains & Cost Basis
- Capital Gains & Losses On Money Market Funds
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I am a doctor. I currently live in a house 25 km from the hospital. I am looking to buy a second home (townhouse) closer to work for when I am on-call for convenience. I don’t intend on renting it nor will I be claiming any losses or home maintenance/improvement costs. The residence will also be used periodically by my children. I may also use this address to get my son registered in a local school in the future.
1. Will I have to pay tax on 50% of capital gains when and if I ever sold the townhouse.
2. Can this qualify for the PRE without affecting the PRE on my current home (if and when that is sold).
3. Is there any benefit if my medical professional corporation purchases the property?
Thanks.
Your corporation should NOT purchase the property, but it may be able to extend a mortgage. If the corp buys the property, your use is a taxable benefit.
You can claim the PRE on any one property for each year of ownership and a change in use can trigger a capital gain.
You should discuss all of this with your accountant beforehand as there are many mines in your path!
Take a read through the following pages on this site:
This is the change in use rules (even though it’s about renting).
Principal residence Exemption
Mortgage for shareholders
-In 1994 my husband bought a condo in Whistler with 2 other couples -his portion was $69,000.
-as years went by one coupe wanted to be bought out at $69,000.
-the unit was rented out each year and income was reported.
-in 2005 the other couple split up and she was paid her portion of $37,000.
-In 2009 the last partner wanted to be bought out for $175,000.
-the unit sat vacant while it was for sale and renovations done.
-My husband sold the unit for $359,000.
How in the world do I calculate everything to report Capital Gains?
Please help me….
Seems to me he initially owned 1/3 of the unit and purchased more over time. The ACB is what he paid for each portion of the unit plus legal and broker fees.
The gain is the difference between his portion of the proceeds of the sale less the ACB. If he was claiming CCA he may have a recapture or terminal loss.
Given the risk of mistake, I suggest hiring an accountant to do the calculations for you.
Could you tell me what ACB and CCA stand for?
Hi Janice,
They stand for adjusted cost base and capital cost allowance. Capital cost allowance is a tax depreciation that you are allowed to claim against rental income.
1) I and the Canadian company I hold shares in qualify for the lifetime exemption for CGT of $750,000. If the total sale price is £950,000 will my CGT be based on $100,000? (950000 – 750000/2)
2) Can I use the proceeds (over and above the $750,000) before CGT to contribute to my RRSP and to my wife’s RRSP both of which have lots of room, to reduce the CGT amount? Thank you.
The 950,000 British pounds will need to be converted into Canadian dollars using the exchange rate that’s in effect at the time the sale closes.
Deduct that amount from the adjusted cost basis and you’ll be at the capital gain. Deduct $750,000 from the capital gain and if there’s still a positive amount one half of the remainder is the taxable capital gain.
What you do with your proceeds of sale is up to you. If you’d like to contribute some of it to an RRSP you’re free to do so provided you have contribution room available.
If I hold shares for several years in a non canadian Privately held “not quoted” loss making company abroad, and I sell my share to a Non Canadian individual abroad at a profit how will I prove that the amount I received was in fact the “fair price”?
Is there a “Fool’s Guide” which explains how to calculate Capital Gains, that one could buy?
It is a question of fact and if challenged by the CRA, you will be reqired to prove the value. This can be done by providing comparisons of other companies, having the company valued by an independent professional etc.
Many thanks…will the contributions made from the gross gain/surplus to the RRSPs be tax free? Or do I have pay the CGT first?
No. They are separate transations. The gain is income and the RRSP contribution is a deduction.
I have a question on Captial Gains. If you were to build a home in 1992 rent the home out over the years, providing all exterior maintanence to the tenants during the rental periods and now sell the home. How do you calculate the capital gains amount ? Do you base homes Fair market value or tax assesment value on completion of constuction in 1992, plus any additional renovations or upgrades for your Adjusted cost base and then and expenses from the sale to figure out the gain ? i.e. House FMV in 1992 $ 280,000 – Expenses over 18yrs $15,000 – ABC = $295,000.00 Sale price in 2010 – $399,000.00 – Capital gain = 104,000.00 you pay on 1/2 = $52,000.00 to report on taxes ?
any help in understanding the starting point would be great!
thank you
KS
The cost is the cost to acquire the land and build the building. The only thing you’d add to it would be, renovations and improvements to property done over the years.
ok, so if the land cost was $75,000.00 and it cost a total of 200,000.00 to build the adjusted cost base would be $275,000.00 plus the $15,000 over the years in improvements (ie. new furnace, flooring upgrades etc) for a total of 290,000.00 then calculate the difference from sale price of 399,000.00 – gain of 109,000.00 – 50% of that is taxable as income ? So what happens to the expense on the sale ie lawyers fess, advertising etc. The cra website is confusing to navigate but the guide to capital gains made it seem like those expenses were also added to the ABC.
This is a great site, thank you for all the great information!
I have a question that I haven’t been able to find the answer to anywhere. I know very little about stocks and taxes, and am really confused about how it all works.
My husband started contributing to a company matched stock program in November 2010. A certain portion of his paycheque automatically gets taken off and the company matches a portion of this as well. We still currently hold the stocks, and have not sold them. Do we need to file any information about these stocks with our taxes for 2010? Or do you only need to file stock information if you sell your stocks and make a profit?
Thank you!
Provided he is not receiving options, the value of the amount the company contributes to the plan is added to his taxable income and included on his T4. The cost of each purchase should recorded by you somewhere. When you sell the shares, you will need this information to report the gains.
I am a canadian permanent resident and tax resident of canada for all of 2010.
In 2010 I am a managing partner invested in a U.S. hedge fund that is an LLC operated as a partnership. The fund buys and sells U.S. listed stocks, generating capital gains and losses. Interest and dividend income is minimal. At the end of each year the fund divides its net capital gain or loss, after expenses, among the members (partners). The partners share somewhat unequally in the net gain/loss depending upon how much they are involved in the management. This is called a “carried interest” in the funds’ performance. No managing partner is guaranteed any profit and historically in some years the managing partners suffered losses.
For 2010 my share of the net capital gain was approximately $18k and is reported to me on a K-1 tax form. The form also shows $7k in business income (sales of natural gas products attributable to me) and $11k in interest paid to me by the partnership for funds I loaned to it during the course of the year.
How do I report these amounts on my Canadian tax return? What tax rate applies?
Report the capital gain on schedule 3, line 132. The business income goes on line 135 of the T1 and the interest you report on schedule 4. Convert all amounts to CAD using the average rate reported on the CRA site.
Hi,
I have a K-1 tax form for owning ProShares shares. On it, I have a short term capital gain (loss) of -82.66 USD and I have what is shown as Part III 11 C Other Income (Loss) of -223. Under Part III 13, I also have Other Deductions of 2.
I’m not sure how to report any of this. Can you please advise? Note that the -223 and the 2 deduction amounts to 225 which is also shown in Part II section L Current Year’s Increase (Decrease). How do I report all of this?
(All amounts have been USD).
THANKS A BUNCH I’m a little late in doing my taxes so any help will be greatly appreciated. Thanks!
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