Capital Gains and Capital Losses

Capital Gains and Capital Losses

  • Capital gains and losses occur when a taxpayer dispose capital assets
  • Often at times, the distinction between capital gains and business income is difficult to discern – please see our “business income vs. capital gains” notes for more info

What are capital assets?

Capital Assets = Assets held in the business to help earn income rather than for quick resale

Types of Capital Assets:

  1. Depreciable Capital Assets:
    • Assets that you take CCA on
    • Examples: Building, Equipment, Furniture, etc..
    • You can have capital gains on depreciable capital assets
    • capital losses are NOT allowed on depreciable assets (since you already get CCA)
    • Eligible Capital Properties are not considered depreciable capital assets; and therefore 50% of the gain on these assets are considered business income
  1. Non-Depreciable Capital Assets
    • Examples: Land, Marketable Securities (i.e. Shares)
    • Non-depreciable capital assets can have capital gains and losses

Calculating Capital Gain

Capital Gains (Losses) = Proceeds of Disposition – Adjusted Cost Base – Selling Costs

Taxable Capital Gain = 50% * Capital Gain [this is the amount reported in income]

Allowable Capital Loss = 50% * Capital Loss

What are Proceeds of Disposition?

  • Selling Price
  • Proceeds from insurance policies for stolen/damaged properties

What is Adjusted Cost Base (ACB)?

  • ACB = The original purchase cost + delivery and set-up charges + non-refundable sales taxes + legal fees + any other incremental costs to get asset ready for intended use

Other adjustments to ACB:

  • Reduce government grants from ACB of the related assets (i.e. gov’t may give grant to help you buy an equipment)
  • Superficial Losses – superficial losses are added to the ACB (see Affiliated Persons and Stop Loss Rules notes)
  • Interest and property taxes in excess of rental income earned from vacant land are also added to the ACB of the Vacant Land

Selling Costs = legal fees, commission


Capital Losses: Special Rule

  • Capital Losses for the year can only be deducted against Capital Gains
  • Any unused allowable capital losses in the current year are first carried back 3 years; if any allowable capital losses still remain, they can be carried forward indefinitely. 
  • Example: in 2012 the following happened,
    • Business Income = 1,000
    • Capital Gains = 500
    • Capital Losses = 800
      • You can only claim capital losses to the extent of capital gains; therefore you can claim $500 capital losses in 2012
      • You would carry back the unused allowable capital losses of $300*50% = $150 three years (2011, 2010, 2009); any amounts still remaining can be carried fwd. indefinitely
      • Unused allowable capital loss = Allowable Capital Loss – Taxable Capital Gain = Net-Capital Losses; for both individuals and corporations it can be carried back or forward under Division C.

Capital Gains Reserve

  • The capital gains reported are further reduced by the capital gain reserves; please see our notes “reserves for tax purposes

Spread the Word!

Share on facebook
Share on google
Share on twitter
Share on linkedin
Share on reddit
Share on email
Share on whatsapp
Scroll to Top