Capital Losses

[Shine]

Is one required to report/register capital losses in the taxation year in which they occur regardless of whether one claims those losses against gains?

Thanks for any advice.

[scomac]

You claim your capital losses in the taxation year that they are realized. You can claim them against current or past capital gains. Barring that, the losses can be carried forward for future years.

[Shine]

Thanks scomac.

Is there a limit on how many years back, and forward, one can either claim or carry those losses?

For example I had both significant capital gains on NT many years ago, selling some after the multiple splits and gains before the bubble burst, yet also now have about $25K in losses in riding the remainder, which at the time I considered "free" shares, to the bottom.

[adrian2]

Is there a limit on how many years back, and forward, one can either claim or carry those losses?

http://www.taxtips.ca/filing/capitallosses.htm

3 years backwards, unlimited forward.

[like_to_retire]

You claim your capital losses in the taxation year that they are realized. You can claim them against current or past capital gains. Barring that, the losses can be carried forward for future years.

A minor point, but capital losses must first be applied against any capital gains in the current year, then once current-year capital gains have been offset, the balance of the loss may either be carried back to offset capital gains in any of the three prior years or carried forward indefinitely to offset capital gains in future years.

ltr

[newguy]

You claim your capital losses in the taxation year that they are realized. You can claim them against current or past capital gains. Barring that, the losses can be carried forward for future years.

A minor point, but capital losses must first be applied against any capital gains in the current year, then once current-year capital gains have been offset, the balance of the loss may either be carried back to offset capital gains in any of the three prior years or carried forward indefinitely to offset capital gains in future years.

ltr

And they don't really offset capital gains in other years. Your gains (50% inclusion) go on net income and everything based on that remains the same. After that you can deduct the losses(50%) from txbl income.

newguy

[Shine]

new guy wrote:
And they don't really offset capital gains in other years. Your gains (50% inclusion) go on net income and everything based on that remains the same. After that you can deduct the losses(50%) from txbl income.

Obviously I will have to research the link that Adrian2 posted. However you seem to suggest that one can only claim 50% of capital losses - is this true? Again for example, I have about $25K of capital losses on floating NT stock that my broker sold on the OTC during this year and I can only apply $12.5K against my complete taxable income and not directly to specific capital gains?

I am confused...this suggests I can apply capital losses to dividend income. True?

Thanks for your patience and advice.

[adrian2]

However you seem to suggest that one can only claim 50% of capital losses - is this true? Again for example, I have about $25K of capital losses on floating NT stock that my broker sold on the OTC during this year and I can only apply $12.5K against my complete taxable income and not directly to specific capital gains?

No. Losses can only offset 1:1 gains, and no other income. The inclusion rate is the same for gains and for losses.

What I think newguy was referring to is that some benefits and credits are affected if the losses are used to offset gains in a different taxation year, the (+) and (-) amounts go onto different sections and some "collateral damage" may ensue. E.g., medical expense credit may be affected.

I am confused...this suggests I can apply capital losses to dividend income. True?

Once again, no.

[newguy]

new guy wrote:
And they don't really offset capital gains in other years. Your gains (50% inclusion) go on net income and everything based on that remains the same. After that you can deduct the losses(50%) from txbl income.

Obviously I will have to research the link that Adrian2 posted. However you seem to suggest that one can only claim 50% of capital losses - is this true? Again for example, I have about $25K of capital losses on floating NT stock that my broker sold on the OTC during this year and I can only apply $12.5K against my complete taxable income and not directly to specific capital gains?

I am confused...this suggests I can apply capital losses to dividend income. True?

Thanks for your patience and advice.

No, capital losses can only be used to offset capital gains. I'm just saying the way it's done isn't the same as it would be in the current year. If you have gains and losses in the same year it's a straight subtraction. If the losses are to offset gains in another year then it's not done the same way. The gains are added on one line of the tax return, then certain calculations are made and then the losses are deducted. This may not impact you but it cost me a lot (all) of child tax credit benefits. The 50% is just how cap gains are done. If you lost (or made) $25k, only $12.5k is included in gains or losses. If it was from a long time ago maybe the rate was different.

newguy

[Jaunty]

A minor point, but capital losses must first be applied against any capital gains in the current year, then once current-year capital gains have been offset, the balance of the loss may either be carried back to offset capital gains in any of the three prior years or carried forward indefinitely to offset capital gains in future years.
ltr

Thanks for the reminder. I knew this and had overlooked it as I did some tax loss selling last week!

[Shine]

Thank you all for your advice and comments.

I think I will have to engage a tax specialist to assist me going forward.

regards

[adrian2]

I think I will have to engage a tax specialist to assist me going forward.

Does this mean you're not trusting our collective advice, or that you think it's better to pay hundreds of dollars, on an ongoing basis, instead of filling out a few boxes yourself? WADR, it's not rocket science.

[newguy]

I think I will have to engage a tax specialist to assist me going forward.

Does this mean you're not trusting our collective advice, or that you think it's better to pay hundreds of dollars, on an ongoing basis, instead of filling out a few boxes yourself? WADR, it's not rocket science.

If you use tax software you don't even need to know this stuff. How do you think I found out about the losses not exactly cancelling gains from other years. Everything I read here and other places said you can carry forward losses and deduct in the future, except it's not exactly true. It wasn't until I did my taxes and the tax software informed me how screwed I was.

newguy

[Shakespeare]

Buy the tax software - an out-of-date used 2010 return package will do - and enter the numbers. Play with it and then decide if a professional tax adviser is necessary.

[adrian2]

If you use tax software you don't even need to know this stuff. How do you think I found out about the losses not exactly cancelling gains from other years. Everything I read here and other places said you can carry forward losses and deduct in the future, except it's not exactly true.

Don't expect to be told subtleties like this by your "tax specialist" (who, BTW, are not regulated by anybody, I can put a shingle outside my house calling myself "Adrian Tax Preparation, Planning & Knowledgeable Advice Inc").

[Londoncalling]

I can put a shingle outside my house calling myself "Adrian Tax Preparation, Planning & Knowledgeable Advice Inc").

By putting that shingle outside your house you could also claim to be "Adrian Shingle Installer, Roof Coverings Expert and House Renovations Inc."

[Shine]

adrian2 wrote:
Does this mean you're not trusting our collective advice, or that you think it's better to pay hundreds of dollars, on an ongoing basis, instead of filling out a few boxes yourself? WADR, it's not rocket science.

Certainly not. I truly appreciate the collective advice here on FWF. My comment regarding engaging a tax specialist was predicated by the fact that I also have significant unrealized capital gains within my investments and I need a strategy to balance losses/gains while shifting to a larger FX based portfolio as the years sweep over me.

This is only the second year I have done my own taxes -using Turbo Tax - and I found it made my blood pressure increase. I have always used a CGA, but my CGA retired two years ago and moved to the Bahama's and I did not like the firm that assumed his clients.

I find the income tax process frustrating and unnecessarily complicated. I may not be alone there.

Once again, thank you all for your comments and advice.

[StuBee]

Concerning the transferring of capital losses between spouses.
Example: Spouse A sells 500 Shares of company X for a 10,000$ loss and immediately spouse B purchases 300 shares of the same company X and then a month later sells his entire position.

For taxation purposes, is spouse A considered to have a 4,000$ capital loss and spouse B a 6,000$ loss? (Or is the entire capital loss denied to spouse A)

[Peculiar_Investor]

I think StuBee's question is exactly what Tim Cesnick covered recently, This holiday season, make your capital losses count - The Globe and Mail.

Transfer losses

If you have losers in your portfolio but no gains against which to apply these losses, take a look at your spouse’s portfolio to see whether he or she has any capital gains. If so, there’s a way to effectively transfer your unrealized capital losses (losses on paper) to your spouse. (If you’ve already sold the investment this idea may still work if you realized the capital loss in the last 30 days.)

In a follow-up, For tax savings, take advantage of four key deadlines - The Globe and Mail he indicates

Nov. 22

This is the last day to initiate the transfer of unrealized capital losses from you to your spouse for your spouse to use those losses in 2011. I spoke about this strategy last week. The first step in the strategy is to sell some of your investments that have declined in value. This step needs to be done on or before Nov. 22 to ensure that the strategy can be completed by the end of the calendar year (see last week’s article for more details, tgam.ca/DEOA).

[StuBee]

Thanks for your reply Peculiar investor! However, it does not answer my question...

[Peculiar_Investor]

Ah, I didn't catch the fact that a different number of shares were re-purchased. So let's try again.

I would think that in your example, 300 shares are 'identical properties' for the purposes of IT-387R2 (Consolidated) Meaning of "Identical Properties" and therefore Spouse A has 200 shares that are treated per normal tax rules. I'm not an accountant, so perhaps one of our resident experts (DavidR) could chime in and confirm.

[DavidR]

I agree with PI's answer.
The superficial loss rules would apply to only 300 of the 500 shares.

So in Stubee's example, Spouse A reports a $4,000 capital loss and spouse B $6,000

[StuBee]

Thanks DavidR

[CROCKD]

As this is the season of tax loss selling, my question pertains to capital losses carried forward. So far I have only carried back losses.

To date I have not claimed Carried Forward Capital Losses (Net capital losses of other years) Line253 on the tax form.

Playing around with tax software it seems to me that the total carried forward amount is deducted from Net Income to calculate Taxable Income even if the carried forward amount is more than the taxable capital gain for the year under consideration.

For example Taxable Capital Gain of $205 reported on Line 127
Net capital losses from other years reported on Line 253 of $350

Anyone care to comment?

[SLeazebag]

As this is the season of tax loss selling, my question pertains to capital losses carried forward. So far I have only carried back losses.

To date I have not claimed Carried Forward Capital Losses (Net capital losses of other years) Line253 on the tax form.

Playing around with tax software it seems to me that the total carried forward amount is deducted from Net Income to calculate Taxable Income even if the carried forward amount is more than the taxable capital gain for the year under consideration.

For example Taxable Capital Gain of $205 reported on Line 127
Net capital losses from other years reported on Line 253 of $350

Anyone care to comment?

Perhaps there is something wrong with the tax software that you are using? I just tried using CanTax and if line 127 is $205 and if the net capital loss carryforward is $350, CanTax limits the amount deducted on line 253 to $205.