|
|
|
Capital gains and losses
For most investors, the prospect of a capital gain is the main attraction of common shares. Over time, shares have proven that this attraction is completely justified, although not all common shares yield capital gains.
Capital gains or losses realized by investors are subject to income tax. Basically, the sale (or deemed sale) of capital property gives rise to a capital gain when the property is sold for more than the price at which it was purchased, and to a capital loss when the property is sold for less than the price at which it was purchased. All capital gains must be declared: 50% of the gain must be added to the year's income, and is subject to taxation at the investor's marginal tax rate.
Capital losses may be deducted from capital gains realized, but usually cannot be deducted from income from other sources. Capital losses may be used to reduce or offset capital gains materialized during the previous three taxation years. They can also be carried forward indefinitely to reduce future capital gains.
Share exchanges
When a group of companies is reorganized, investors may be given an opportunity to exchange their shares in one company for shares in another. This exchange constitutes a transfer that can generate a capital gain. However, investors who meet all the conditions can benefit from rollover measures and carry the capital gain forward until the new shares are transferred.
Transfer of property denominated in a foreign currency
When investors transfer property denominated in a foreign currency, the gain or loss must be translated into Canadian dollars. The amount is calculated using the difference between the cost of the property and the exchange rate in effect at the time of the transfer, and the cost of the property and the exchange rate in effect at the time the investment was purchased.
For example, let's take the purchase of 100 shares in ABC company at the price of US $35 and an exchange rate of $0.94 (CAD/US); the total cost is CDN $3,290. If the 100 shares are then sold at the same price, or US $35, but at a different exchange rate, i.e., $1.07 (CAD/US), the proceeds of the sale is $3,745. The share price has not changed, but the exchange rate has increased. Therefore, there is a translation gain of $455 ($3,745 - $3,290).
The amount of the translation gain or loss must be taken into consideration only if the gain or loss exceeds $200.
For any questions concerning the impact your investment decisions could have on your income tax return, consult your tax advisor.
For more information please visit
Canada Revenue Agency |
|
|
|
© NATIONAL BANK OF CANADA. All rights reserved 2008.