# Reporting Capital Loss



## jrsaballa (Nov 22, 2015)

How do I report capital loss on a T1 General 2014? And can only a corporation benefit from reporting loss?


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## Davis (Nov 11, 2014)

Maybe you need help fro a tax preparer. If you can't understand the information provided by CRA, you need professional assistance. People here are well-intentioned and knowledgeable, but if they give you the wrong advice, you have no recourse, and it could cost you a lot of money and aggravation.


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## Eclectic12 (Oct 20, 2010)

jrsaballa said:


> How do I report capital loss on a T1 General 2014?


Same place as reporting capital gains for that type of capital property ... Schedule 3.

If it's "Qualified small business corporation shares" - that's Schedule 3, Section 1. 

If it's "Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares, and other shares", then it's Schedule 3, Section 3.




jrsaballa said:


> ... And can only a corporation benefit from reporting loss?


Anyone who has their stock trades classed as capital gains (day traders and others have to report their trades as regular income) has the potential to benefit. 

The capital loss can only be used to offset capital gains so if there's no capital gain up to three years back or in the current year - the capital loss will be recorded to be carried forward until there is one.


I don't mean to offend ... but with the broad range of questions about taxes, it might help to borrow a beginner's guide to taxes book from the library. The good one's will have a section on investing and will walk through examples.


Cheers


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## Getafix (Dec 29, 2014)

I have a related question. So if you have a overall capital loss trading stocks for the entire year. Will it affect the tax you pay on your income from your day job? Or does it only off-set potential capital gains made via stocks.


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## Eclectic12 (Oct 20, 2010)

It only offsets capital gains ... not day job income.

That said, the capital gains can be other sources than stocks/bonds. A common example is real estate where the tax payer sold a cottage or rental property. The property sale likely has a capital gain, which the CL can offset.


Cheers


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## stardancer (Apr 26, 2009)

Getafix said:


> I have a related question. So if you have a overall capital loss trading stocks for the entire year. Will it affect the tax you pay on your income from your day job? Or does it only off-set potential capital gains made via stocks.


See eclectic12's reply. A capital loss does NOT offset your regular income; it can be applied only towards capital gains. You must report the loss in the year it occurs in order to carry it back 3 years or carry it forward. (This is assuming you are not a day trader who must report your capital gains/losses as income)


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## scorpion_ca (Nov 3, 2014)

I purchased ZPR and VCN at the beginning of this year in my cash account. The market value of both ETFs are lower than the book value but I do not have any intention to sell it. Moreover, I do not have any other ETF in my cash account. My understanding is that if I sell any of my funds then I can claim capital loss or gain. Please correct me if I am wrong. Thanks!


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## Eclectic12 (Oct 20, 2010)

ETFs are different from common stock in that they pay cash from mixed sources. If the particular ETF paid some of it's cash from a capital gain, one will have to report/pay capital gains for this. Where one has a capital loss, the CG part can be offset.

Looking at VCN's 2014 distribution tax break down on Vanguard Canada's web site, it says that of total of a little under $0.55 per unit paid during the year, $0.00274 was a taxable CG. This would be listed on the T3 form issued by the broker. Whether one sells the investment or not, one has to report/pay any taxes on this CG.

It also lists that in 2014, there was Foreign Withholding taxes of $0.07836 so one should remember to claim the Foreign Tax Credit.

There is also $0.00454 Return of Capital ... which will reduce the Adjusted Cost Base (ACB) by this amount multiplied by the number of units held.


The type of Capital Gain or Loss that people are more used to is from selling the investment (in this case, an ETF). To trigger this type, one would have to sell the investment. No sale means no capital gain or loss to calculate.


Cheers


*PS*

Technically, if the CG paid by the ETF distribution as big enough - one could use other capital losses to wipe it out. In practice, the amounts are small compared to the much larger CG from selling the investment so I doubt many people bother.

Case in point, across all my taxable investments last year - I had $90 CG from cash paid. Selling investments on the other hand, was more like a $10K CG.


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## scorpion_ca (Nov 3, 2014)

Thanks for your clarifications though I am more confused now. This is the first year where I opened the cash account and purchased ETFs. So, I don't know how T3 looks like or works but I will be getting one in 2016. I use free tax software to file my income tax return and I have idea about T5. Based on your clarifications, my understanding is now following -

- I will have to pay tax on CG even I don't sell the ETF, I will get CG info from the T3. I was wondering why I need to pay tax on CG now even I don't sell the ETF. So, I will be paying taxes on CG on a year to year basis as well as when I sell the ETF if there is any CG.

- I will have to claim FTC. How do I do it? Do I get info from T3 as well? I didn't choose DRIP for these ETFs because I heard that I will have to calculate ACB that I do not know how to calculate it though I will learn it next year for 2016 tax return.

I am willing to learn but not interested to go to an accountant to pay for my income tax return.....frugal guy.


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## Eclectic12 (Oct 20, 2010)

Feel free to let me know what is confusing.

Boiled down to two points ... what I was trying to get across is that:

1) While CG from sale might not kick in for decades ... if the investment pays cash, there is the potential for some/all of the cash to be taxed as a yearly CG. VUN in 2014 did this.

2) ETFs like REITs have a broad range of possible tax implications, depending on what it paid.




scorpion_ca said:


> This is the first year where I opened the cash account and purchased ETFs. So, I don't know how T3 looks like or works but I will be getting one in 2016.


The good news is where the ETF was bought in 2015 ... you have until April 30th to figure out the yearly tax implications and until you sell to figure out ACB implications. I'd recommend learning at your own pace, making sure you've got a good system to capture the info needed and adjusting your bookkeeping system.

I learned the hard way from REITs that understanding in advance and putting info capturing in place is a lot easier than trying to figure it out, years after the fact and when info that used to be easily available is harder to find.

As for what a T3 looks like, here's CRA's blank PDF ... http://www.cra-arc.gc.ca/E/pbg/tf/t3/README.html




scorpion_ca said:


> I use free tax software to file my income tax return and I have idea about T5. Based on your clarifications, my understanding is now following -
> 
> - I will have to pay tax on CG even I don't sell the ETF, I will get CG info from the T3. I was wondering why I need to pay tax on CG now even I don't sell the ETF.


It should be simple then as the tax software should have a T3 form. Plug in the numbers and I believe everything but the return of capital should be taken care of.

As for "why pay CG" ... that is because Vanguard is reporting that CG was the source of that amount of cash. 
This is actually a good thing because if it was "income" or "foreign income" ... it would taxed at a much higher rate.




scorpion_ca said:


> I didn't choose DRIP for these ETFs because I heard that I will have to calculate ACB that I do not know how to calculate it though I will learn it next year for 2016 tax return.


Once you've learned it ... you may decide that it's not that bad. After all, where one DRIPs this is treated like another buy. The maximum number of calculations is going to be set by the frequency cash is paid then DRIP'd. If the ETF pays quarterly ... that is at maximum adding four buy transactions a year.

Here is a link to get you started ...
http://www.taxtips.ca/personaltax/investing/taxtreatment/etfs.htm


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## stardancer (Apr 26, 2009)

Basically there are two types of capital gains when dealing with ETFs or with mutual funds, although both types goes on schedule 3
1- the capital gains or loss reported on the T3 represent the amount of cg the whole fund made from trades during the year and the amount on the T3 is your share of that total amount; this has nothing to do with your selling the funds, but must still be reported on line 176 of schedule 3; same thing with cg reported on a T5 and entered on line 174

2- when you sell an investment, you sell it for either more than the acb or less than the acb; you must keep track of the acb yourself, whether it is an ETF or mutual fund paying a drip, or stocks paying dividends that are reinvested. In this case, you report the cg/cl in section 3 of schedule 3.


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## scorpion_ca (Nov 3, 2014)

Thanks everyone. I will review those links and might come back with lot of questions.


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