# Problem with calculating capital losses



## Mr. Blue (Dec 3, 2013)

I had a very bad year in 2012. My iTrade account went from $600K at the start of year down to $30K (consisting only cash, no equity) at the end, so obviously my losses should easily be greater than $500K. But when I tried to calculate my losses, using data from iTrade’s annual trading summary, I could only come up with $170K in losses. I’ve been preparing capital gains/losses on my own for some time now, and never had any problem, but I’m really dumbfounded by the result for 2012. Before I go out and find a tax specialist, I’d like to ask this forum if there any plausible, however remote, explanation for this seemingly mind-boggling discrepancy? TIA.


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## wendi1 (Oct 2, 2013)

Well, assuming that this is not just a wrong numbers problem:

If you bought your equities (or options or whatever) for $200K (170+30) in some year in the past, then they went up to $600K at the start of this year, then down to $30K, you would get the results you describe. It is only the difference between what you paid and what you got that matters, not what it was in January.

There are some other subtle complications if you had capital gains against which these losses were booked, but I think I would start with a call to iTrade to see how much delay there is in the numbers they report.

When you find out the answer, report back (please) - this is interesting.


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## Eclectic12 (Oct 20, 2010)

The $170K might be accurate as when you say "went from $600K" - likely the high value is not what you paid for the equities (your adjusted cost base or ACB) but what the equities were trading for in 2012 and the paper value.

To calculate the capital loss, it's:
capital gain (or loss) = cost of the equity - proceeds when selling = ACB - proceeds


The first question is do you have all of the annual trading summaries to go back all the way to when the first equity purchase was made? It doesn't sound like you bought all the equities in 2012 so you likely need several years.

For example, if you bought stock A in two purchases, one in 2011 and one is 2003 - then at best case, just for that one stock you will need the 2011 & 2003 annual trading summary to get the purchase prices. Then too, for the 2003 purchase, you might need to go back to your monthly statements as some brokers were not producing annual statements in 2003.


The other question is what types of equities are these?

If any of the investments are like a REIT or MF or ETF that pay a mixed income (key example - return of capital that reduces the cost of the equity) - that would be another reason why the capital loss would be lower that you expect.

For example - bought a REIT for $10 a unit in one purchase that pays 90% of it's $1.10 cash distribution as RoC and hold it for three years.

For a regular stock - the ACB would have been $10 a share + commission and that's it.
For the REIT - the ACB will be $10 a unit + commission - (RoC portion per year x years held) = $10 a unit + commission - ($0.99 [ the RoC payment] x 3 years) = $10 + commission - $2.97 = $7.03 + commission.

The REITs cost will be lower and this will result in a smaller capital loss.


Cheers


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## Xoron (Jun 22, 2010)

As Wendi1 stated. It's how much you PAID for the stocks that matters. Not how high it had gotten while you owned it.

Example:
Buy 1000 shares of ABC at $10 = $10,000 paid

Stock goes up to $15 a share during the year, you now have $15,000 of value of ABC shares ($10,000 invested, $5000 profit)

Stock goes to $0 per share, you have a loss of $10,000.


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## Mr. Blue (Dec 3, 2013)

Thank you all.

Some additional detail: those $600k were the proceeds from the stocks I sold in 2011 and I've already paid capital gains tax on $600K in full. And it went down to $30K as of the end of 2012, which means I literally lost all the capital gains in 2011. Would I be entitled to have a full refund on the capital gains tax paid for 2011? 

BTW, I've email iTrade last night, yet to get a response.

Thanks again.


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## wendi1 (Oct 2, 2013)

ooo.

Eclectic, I hadn't thought about ROC being such a large percentage of the total cost... My ROCs (RsOC?) are very small, typically, but of course, over time that could be a significant factor.


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## MoreMiles (Apr 20, 2011)

Most brokerage firm in the Back office can run a gain / loss report for you. For example, BMO Investorline does this for free for their 5-star clients. This is a detailed report in addition to the trading summary.

I am sure your ScotiaItrade help desk may do something similar. They may need to charge you but even spending $100 to claim that loss properly is worth it.

If you don't mind, what went wrong? Were you shorting the markets, doing the IPO, or playing the options? I am curious because I would like to avoid a similar loss. I was playing the Chinese tech stocks and these Muddy water short-selling reports almost killed my portfolio in 2011 and 2012.


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## P_I (Dec 2, 2011)

Mr. Blue said:


> which means I literally lost all the capital gains in 2011. Would I be entitled to have a full refund on the capital gains tax paid for 2011?


Yes, you can carry back capital losses for three years, see How is a 2012 loss carried back to previous years? | CRA


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## Guban (Jul 5, 2011)

@Mr. Blue. Did you sell? You don't have a loss, until you realize it.

You should be able to get back most/all of the capital gains taxes you've paid from 2012 and a couple years earlier too, if you really do have such a large loss. That's a small consulation, but at least it is something for such a big decrease in portfolio value.


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## Eclectic12 (Oct 20, 2010)

wendi1 said:


> ooo.
> 
> Eclectic, I hadn't thought about ROC being such a large percentage of the total cost... My ROCs (RsOC?) are very small, typically, but of course, over time that could be a significant factor.


The smaller the RoC part is - the more time required to have a significant impact (assuming there are no transactions increasing the ACB).

The other part to watch out for is the year to year variation of the RoC. Before tracking it more closely, I originally thought RioCan's RoC would be relatively the same yet in the last twelve years - RioCan's cash payments have varied between $1.075 through $1.38 but the RoC portion has varied between $0.33 through $0.86 in the same time frame (i.e. 31% through 63%).

(There's also been 1995 where the full $1.15 was RoC.)


Cheers


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## Mr. Blue (Dec 3, 2013)

As promised, a quick update to my situation. 

iTrade wasn't a big help, which was expected. So armed with monthly statements and annual trading summaries (for 2011 and 2012), I decided to cross-reference every entry there to find any anomaly. Since I was quite an avid trader in 2012, the annual trading summary alone had well over 1000 rows in the excel file, and cross-referencing by hand would be a nightmare. So I spend a few days on a crash course to refresh my regular expression programming with visual basic, once the program was debugged to my satisfaction, I ran it with the monthly statements and trading summaries. It turned out that iTrade's annual trading summaries for 2011 and 2012 were erroneous in that they failed to report a late-settlement trade that occurred on the last trading day in 2011, fortunately it was recorded in Dec 2011's monthly statement. This single omission reconciles a loss of nearly $500k. This experience bears frightful implications, that is, even big firms like iTrade is not immune from big screw-ups. 

Thank you all for your help, and Merry Xmas.


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## Xoron (Jun 22, 2010)

Mr. Blue said:


> ... It turned out that iTrade's annual trading summaries for 2011 and 2012 were erroneous in that they failed to report a late-settlement trade that occurred on the last trading day in 2011, fortunately it was recorded in Dec 2011's monthly statement. This single omission reconciles a loss of nearly $500k. This experience bears frightful implications, that is, even big firms like iTrade is not immune from big screw-ups.
> ....


Correct me if I'm wrong, but it takes 3 days to settle, so the trade shouldn't be accounted for in 2011, but 2012. (3rd business day of Jan 2012). Looks like iTrade got it correct.


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## Mr. Blue (Dec 3, 2013)

Whether or not the trade was recognized in 2011 trading summary or 2012 trading summary was not important to me, but the fact that it did not appear in either summary was. I had to turn to monthly statements to spot the omission.


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## Toronto.gal (Jan 8, 2010)

Mr. Blue said:


> This experience bears frightful implications, that is, even big firms like iTrade is not immune from big screw-ups.


The trading summary is not a tax document, simply a complimentary service, which should always be checked for accuracy.

Merry X-mas to you as well, and better luck in 2014.


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## Eclectic12 (Oct 20, 2010)

Mr. Blue said:


> Whether or not the trade was recognized in 2011 trading summary or 2012 trading summary was not important to me, but the fact that it did not appear in either summary was.
> 
> I had to turn to monthly statements to spot the omission.


 ... which is why I reconcile the monthly statements, my notes in excel and the annual trading summary.

The financial institution hires people - who do their best but mistakes can crop in (from many sources such as lack of testing, data errors etc.).


The reconciling is tedious but manageable ... similar to reconciling a chequing account or visa bill.


Cheers


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## MoreMiles (Apr 20, 2011)

I find this very interesting. If a single trade would make you lose $500,000, you should remember that painful transaction very well. Right? Would you think about it right away when there is a discrepancy. Unless you have a $100 million account, a huge transaction like that is usually unforgettable, be it a loss or gain. And you don't remember? No offence but you should probably let a professional investment counsellor handle your money. And wow, 1000 trades in 1 year....you should switch to BMO IL if you want to do them yourself. they provide their high asset or high trade count clients better services. Also their trade records are fully stored for at least 18 months and can be downloaded to export to excel. At the end of year, they mail you a capital gain loss calculation in addition to trading summaries in addition to bank statements. Their 5 star staff is often very helpful as they are trained to assist premium clients faster. 

And sorry to say, you are the best example why active trading is usually worse than passive indexing. Not too many beat the market...


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