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[Options for shareholders cashing out]

Even with the market uncertainty, Canadians are looking at cashing in shares. And there is at least one major deal pending which would mean Canadians holding shares in a telecommunications giant will be receiving cash for their stocks.

It may seem like a windfall initially but there is capital gains tax to consider before the spending spree begins.

Each shareholder has three options:

  1. Pay tax on the total amount: You need to know the purchase price or the adjusted cost base of your shares and any expenses incurred buying or selling your shares. Once you calculate your actual capital gain based on these numbers, 50 percent of the gain is subject to taxation.

    Example: 500 shares purchased at $20 = $10,000
      500 shares sold at $40 = $20,000
      Expenses & commissions = $75
      Capital gains = $9,925
      50 per cent of gain added to income
    and taxed = $4962.50

  2. Apply any capital losses to reduce amount taxed: If you have had stocks or shares that did not perform well in previous years and you are still carrying a capital loss, you can apply your 2008 gains against them. This will reduce the total amount of your capital gain and as well reduce the amount of tax payable. Capital losses can be carried forward indefinitely.

  3. Donate shares in kind and pay no tax on capital gain and get a tax receipt: Recent changes in Federal legislation means you can donate public stock or shares to a registered Canadian charity and receive a tax receipt for the full market value of your shares on the day of the donation. This way you can avoid the capital gains tax and still deduct the charitable donation from your 2008 tax return.

John lives in Ontario
taxable income - $75,000		 Donation of Share Certificates Cash donation after sale of shares
Value of shares/Donation receipt $20,000 $20,000
Tax on capital gain ($4,962.50 x 43.41%) N/A $2,154.22
Tax credit on donation ($20,000 x 46.41%) (9,282.00) (9,282.00)
Net tax savings after donation (9,282.00) (7,127.78)

John will have $2,154.22 in additional tax savings by donating the share certificates.

 

[Shared child custody could mean shared CCTB and GST/HST]

The Canada Revenue Agency (CRA) has announced recently developed a new policy for taxpayers in joint custody situations. Now each parent may claim the Canada Child Tax Benefit (CCTB) and GST/HST Credit for their child on a six-month on, six-month off rotation.

In order to apply for this treatment, the individual not currently receiving benefits should submit Form RC66 Canada Child Benefits Application with a note or letter that explains the child's living arrangement. Both parents must sign the note and the application.

The new applicant will be put into eligibility for a six-month period as of the current date. The CRA will send letters of explanation to both the new applicant and the current recipient. After the new applicant's six-month rotation is finished, the other individual will receive benefit for the next six months.

This new policy will affect existing arrangements parents may already have in place. The CRA is no longer allowing one parent to claim all the credits. Some parents have existing agreements to allow the lower income parent to claim the benefits since they are eligible for the most money. The CRA has decided that since the child lives with two individuals, both parents are "responsible for the child's care and upbringing".

The CRA does not consider the amount of the benefit to be a factor in the claim. If one parent earns a large income, they may not receive any benefit for the six month rotation where they are eligible to claim the child tax credits.

The new policy is available on the CRA Website.