How to figure out the capital gains & losses of your stock portfolio.
February 27, 2017
Whether you’re a paperwork ninja with folders for everything, or if “organized chaos” sounds more like you, it’s never too early to start getting your important documents together for tax time. Running around trying to find papers during tax season is never fun, and you’d hate to miss a deadline, or even worse, a deduction, because you couldn’t find something in time.
One of the most time-consuming tax time tasks is figuring out your capital gains and losses. If you have investments, remember that all sales or dispositions of stocks, bonds and mutual funds in non-registered accounts need to be reported in the year that the transactions are completed.
How do I report a gain or loss?
Dispositions (a.k.a. gains or losses) are reported on a Schedule 3 of your personal tax return and a fair amount of info is required, including:
- Records of the number of shares or units sold
- The name of the fund or corporation and the class of shares
- The year of acquisition
- Proceeds of the disposition
- Adjusted cost base
- Expenses incurred
Unfortunately, statements and T5008 slips from financial institutions and brokers don’t usually have all of these details, so making sure your records are accurate is key. The most common things that get missed are the year of acquisition and the adjusted cost base of the initial investment. Both are vital to accurately calculating capital gain or loss.
What’s the ACB and how do I figure it out?
The Adjusted Cost Base (ACB) of an investment is the actual cost of the property, plus any costs related to the purchase, such as commissions. To make sure you have the right cost, keep all trade confirmations and statements from investment accounts when your purchases are made. The documents will show the date of acquisition, the purchase price, the commission paid and any other expenses related to the purchase. All of these amounts help calculate ACB, and it will change each time new shares or units of the same company are purchased.
The calculation of the ACB must be done even more often for mutual funds and stocks held in a Dividend Reinvestment Plan (DRIP). Every time a distribution or dividend is used to buy more units or shares, it’s considered a purchase. The cost of every reinvestment needs to be added to the cost of the property already owned.
Dispositions of stocks purchased and sold in foreign currencies must be reported in Canadian dollars, and the exchange rate on the date of purchase and date of disposition need to be reported. It’s almost inevitable for the exchange rate on the date of purchase to be different than the one on the date of sale, and that change has an impact the capital loss or gain calculation.
ACB calculations can get even more complicated for shares in a company that splits, consolidates, merges with another company or spins off a division, so good record-keeping is essential!
Ready to report?
So, you’ve totaled all your gains and losses for the year. Here’s how they’ll affect your return.
- Tax filers with a capital gain must report 50 % as taxable income.
- Tax filers with a capital loss can carry back 50 % of the loss taxable capital gains reported on the three previous years’ returns, or carry them forward indefinitely.
- Capital losses can’t be used to offset other income on the current year’s tax return, except when filing a final return.
- Capital losses carried forward should be included on the Notice of Assessment for use in future years.
Keeping track of your portfolio’s capital gains and losses throughout the year will make tax time that much easier, and helps avoid any unnecessary penalties. Hold onto trade confirmations, statements and investment account info to stay ahead of the game.