# Calculating Capital Gains



## ttibsen (Sep 27, 2015)

Let’s assume the following scenario

2015 - Royal Bank of Canada - RY

January Buy	100	@	$80	-	$8000

February Buy	100	@	$75	-	$7500

March Buy	100	@	$70	-	$7000

$22500 Total cost of buying shares

November Sell	150	@	$76	-	$11400

So all the transactions take place in 2015. How are the capital gains (if any) on the selling of 150 shares of RY calculated? I’ve thought about this for awhile but I just can’t see how the capital gains (if any) would be arrived at in such a scenario. Any insight on making this calculation would be appreciated.

Cheers, John


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## humble_pie (Jun 7, 2009)

good for you, you're already halfway to your own answer.

your ACB is 22,500. Divide that by your 300 shares & your ACB per share is $75.

when you sold 150 shares, the ACB of those shares was (150*75), or 11,250. Your capital gain is very low, tax payable at 50% should be almost nothing.

notice that the remaining shares still have a cost base of 75. Cost base of the remaining holding is (150*75), or 11,250. These are the numbers to carry forward for the next transaction in the ongoing sequence. In this case, it happens that the numbers retained are the same as the numbers for shares sold, but that was only a rare coincidence.

next, you might buy 200 shares at 68.50 ... how would you determine the running sub-totals then? each:

my point is that one needs to keep a total ACB figure but also a per share ACB figure, if one intends to conduct partial buys & sells, which in fact is what most people do over time.

i have a friend who just cannot manage to do these calculations. I've tried to show her but failed. Her solution is to buy stocks & deliberately sell the entire holding within the taxation year. It's quite comical.

PS many people use spreadsheets but i find that, when one is buying & selling intermittently in US market, there are so so so so so many columns! one needs columns for USD FX rates as of the date of purchase, also for the date of sale since the FX rate by definition will be different. As a result i have a rough kind of spreadsheet for each stock strictly separately. I maintain the file alpha by company name, so it's like an old-fashioned ledger book.

an advantage of keeping one file per company in a folder or even an organized ledger of paper pages per company is that this record can conveniently include details of splits, mergers & re-organizations. These kinds of info often don't fit neatly into narrow spreadsheet columns.


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## OnlyMyOpinion (Sep 1, 2013)

Not to confuse you, but the capital gain based on the above would be $11,500.00-$11,250.00=*$250.00*.
This does not include any commissions you paid to buy or sell the shares however. 
You probably paid a commission to buy the shares and this should be included in (added to) the ACB: For example, if you paid a commission of $9.99 for each purchase in Jan, Feb, Mar ($9.99*3), your ACB will be $22,500.00+9.99*3=$22,529.97 or $75.10/share. So the 150 shares you sold had an ACB of 150*$75.10=$11,265.00.
When you sold them, if you also paid a commission of $9.99, that is subtracted from your proceeds. So, proceeds of $11,500-$9.99-$11,265.00=*$225.01* capital gain.


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## ttibsen (Sep 27, 2015)

Thanks Humble Pie and Only My Opinion.
I really had no clue as to how the calculations were done and your answers made the process crystal clear.
I see that once you throw in commissions and FX rates, you have to be incredibly detailed in your record keeping but unlike your friend, I can handle the math. Once again, thanks to both of you for bringing light to this formerly dark subject (at least for me).

Cheers, John


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## humble_pie (Jun 7, 2009)

you're right about the commish! thankx

all i was trying to do was get across the idea of How to Calculate Capital Gains. The soul, essence, germ & gist of how-to. Since that's what the OP asked for.

so many people are like my friend, who meekly sells everything every year so she can rely on the broker's trading summary instead of calculating capital gains for herself. 

we can see in cmf forum each year how so many investors don't know what to do. All the discount broker reps have entertaining stories about the tax questions they regularly receive. I myself don't have any clue what to do, since imposing a tax exam upon every investor before they are allowed to open a brokerage account is not an idea that would fly.

we can see that the CRA has already taken widespread confusion into its own hand, as it has asked brokers to keep their clients' ACB for them. My accountant says that brokers do make quite a lot of mistakes, but he says alas the clients themselves make very many more mistakes, so the CRA is going for the lesser evil.


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## fatcat (Nov 11, 2009)

www.adjustedcostbase.ca
free, easy to use and powerful


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## humble_pie (Jun 7, 2009)

fatcat said:


> www.adjustedcostbase.ca
> free, easy to use and powerful



the catch is it doesn't appear to do US trades accurately. These need quite a mass of additional detail. This website would have to be connected 24/7 to the bank of canada in order to access noon rates for clients, who in turn have to enter the buy dates & the sell dates ... is this going on? is adjustedcostbase dot ca paying for BOC data? doesn't look like

there is probably a better software which is the one vikash (i think it's vikash) invented & he goes on about in cmf forum. Even that may not do US trades properly, although the proprietor seems capable of succeeding perfectly.


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## fatcat (Nov 11, 2009)

you just need a consistent method of reporting trades
i enter the trade in us dollars, check the box to say i paid a commission on us dollars and the enter the exchange rate from xe.com
it keeps it all in canada dollars but i can download it all to a spreadsheet that shows the original us dollars
my usa tax preparer loves the site, i gibe him my credentials and he gets exactly what he needs

what mass of additional details are you talking about pie ?


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## humble_pie (Jun 7, 2009)

cat i'm such a dumb crumb that, to me, having to manipulate USD cost per share when buying, also USD cost of total holding, FX rate, CAD cost per share, CAD cost of total holding ... then having to set up the same data for each sell side transaction (i'm assuming swing trading here) ... repeatedly ... all this is pita to a strawberry tart like myself. It may not be a mass of details to a smart cat but it's indigestible pita to a slow pie.

i do fudge a bit in my records & usually don't record USD total costs, especially since the broker does, or at least one broker does (the other doesn't.) This fine for me because i don't have to file US returns.

now when you say your US accountant loves this website for your US return, the lightbulb does go on. I see that ACB dot ca allows guest trials, i will make one up & i will try it out & if it can truly work with endlessly repeating partial buys & partial sells plus doing these in US dollars, i will be thrilled silly, ok.


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## humble_pie (Jun 7, 2009)

ttibsen said:


> ... I can handle the math. Once again, thanks to both of you for bringing light to this formerly dark subject (at least for me)



lol it's like you-know-what, you can only lose it once. After the initiation is a life of joy.


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## fatcat (Nov 11, 2009)

humble_pie said:


> cat i'm such a dumb crumb that, to me, having to manipulate USD cost per share when buying, also USD cost of total holding, FX rate, CAD cost per share, CAD cost of total holding ... then having to set up the same data for each sell side transaction (i'm assuming swing trading here) ... repeatedly ... all this is pita to a strawberry tart like myself. It may not be a mass of details to a smart cat but it's indigestible pita to a slow pie.
> 
> i do fudge a bit in my records & usually don't record USD total costs, especially since the broker does, or at least one broker does (the other doesn't.) This fine for me because i don't have to file US returns.
> 
> now when you say your US accountant loves this website for your US return, the lightbulb does go on. I see that ACB dot ca allows guest trials, i will make one up & i will try it out & if it can truly work with endlessly repeating partial buys & partial sells plus doing these in US dollars, i will be thrilled silly, ok.


it is of course completely free ...

you can enter your standard trading commission in your profile and it will automatically enter it into the commision box (at my suggestion the site owner added this) 

you can then check a boxes for trade and commission if you are entering e foreign currency transaction, you then use a consistent reference source for all your cad dollar values vs foreign currency, i use xe.com when i enter the information

it handles return of capital, capital gains dividend, options, reinvested dividends

if you are good about keeping it up with each trade, it will reward you down the road at tax time

everything can be quickly and easily downloaded and shared with your account if you have them do your taxes

i know there are other options and i keep looking for a perfect excel spreadsheet but in the end i come back to acb.ca


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## AltaRed (Jun 8, 2009)

fatcat said:


> www.adjustedcostbase.ca
> free, easy to use and powerful


I am sure the site does all that one needs. I have looked at it a couple of times and it troubles me there is no information on who is behind the site, ownership, security, etc. 

Term Of Use are of little value (to me anyway) without faces and business address behind the name.


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## Eclectic12 (Oct 20, 2010)

ttibsen said:


> ... I really had no clue as to how the calculations were done and your answers made the process crystal clear.


Interesting ... it may help to take a book out of the library on investing or taxes for beginners. Usually there is a good chapter on all of this in them.

If not, there are some good blog articles and web sites such as this one.
http://canadianfinanceblog.com/how-to-calculate-your-adjusted-cost-base-acb/


It is also important IMO to learn that this ACB calculation is accurate for the shares in question (i.e. the RY shares which is an eligible dividend paying stock). It is one of the simple versions of calculating ACB. As long as one has confirmed the investment matches this ... all is good.

The trouble is a lot of people (myself included before I knew better) who have confused an investment that pays cash with one that pays 100% dividends. I bought a REIT, where the cash paid is a mix of income types where the return of capital (RoC) also affects the ACB. Another common example is where people want an ETF to keep life simple but have not verified what types of income make up the cash paid by the ETF.

http://www.taxtips.ca/personaltax/investing/taxtreatment/incometrusts.htm

I say this not to intimidate you but to make you aware so that you can check before buying. I've found it easy to stay on top of the info needed as long as I was aware from when I bought the investment.




ttibsen said:


> I see that once you throw in commissions and FX rates, you have to be incredibly detailed in your record keeping but unlike your friend, I can handle the math.


I'm not sure why you are thinking it's "incredibly detailed". 

If the RY shares were bought on the TSX in Canadian dollars, then the records needed are for buy transactions, buys using a dividend re-investment plan transactions and sell transactions. Using your example, there's three buys and one sells so that's at worst, four calculations. The sell also means that one that year's tax return, there is also the reporting of the Capital Gain (or Loss) on Schedule 3 "Capital Gains or Losses in 201#", part 3 "Publicly traded shares ... ".

If the RY shares were bought on a US exchange, in US dollars - there would need to be a conversion to CAD in addition.


A couple of tips:

One mistake I've made is the past is to look at Schedule 3, part 3 where there is a column "ACB" and think this is "ACB per share". It is the ACB for all the shares sold. Returning to your example which is ignoring commissions, the proper ACB would be $12,250 instead of the ACB per share of $75. Where my confusion came from was that "ACB" at the time was always "ACB per share". I have since modified my tracking spread sheet to automatically calculate both "ACB for all shares" and "ACB per share". The per share version makes it easy to figure out the tax form number by multiplying shares sold x ACB per share.

The other tip is that I find it easier to record what info is needed when the buy/sell is made. The info is already at hand when the transaction is made. Where a REIT or ETF has been bought, there is also a once a year or twice a year recording of what is needed. When done in small batches, it does not take long and makes it much faster at tax time.


Cheers


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## asterbin5 (Oct 1, 2015)

The first step is calculate exactly how much capital gain you've earned in the last year (yes, you must pay capital gains tax every year). This sounds easy enough. All you have to do is take the sale price of a capital asset (stock, real estate, etc.) and subtract the original purchase price. But it gets a little trickier if you're not the person who originally purchased the asset or investment.

But the most important factor that determines your capital gains tax rate is your income tax bracket. The higher your income tax bracket, the more you're going to pay in capital gains tax. As a general rule, you pay capital gains tax at the same rate as income tax for all short-term investments. So if you're in the 10 percent income tax bracket, you'll pay 10 percent for all short-term capital gains. And if you're in the 35 percent income tax bracket, you'll pay 35 percent for all short-term capital gains.


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## Eclectic12 (Oct 20, 2010)

asterbin5 said:


> ... All you have to do is take the sale price of a capital asset (stock, real estate, etc.) and subtract the original purchase price. But it gets a little trickier if you're not the person who originally purchased the asset or investment.


YMMV ... being the original purchaser of a REIT where I mistaken thought the capital gains calculation would be the same as a stock that paid 100% eligible dividends did nothing to reduce my challenges when I sold. Knowing in advance and keeping different records has simplified things. 

For those that haven't experienced it yet ... the investment choice can change the capital gains calculation and/or add other taxes that have to be reported.




asterbin5 said:


> ... The higher your income tax bracket, the more you're going to pay in capital gains tax.


It is true the higher the income bracket, the higher the capital gains tax will be for investments sold in a gain position. 

YMMV as to whether it ends up being added in the "taxable income" number as a capital loss can reduce or eliminate the capital gain. If it nets out to $0 then there will be no capital gains tax to pay. 




asterbin5 said:


> ... As a general rule, you pay capital gains tax at the same rate as income tax for all short-term investments.
> And if you're in the 35 percent income tax bracket, you'll pay 35 percent for all short-term capital gains ...


You'll have to explain this one.

The way I see time affecting the tax rate for an investment is where the gov't changes the income level and/or the tax rate. An example is Ontario in 2014 lowering the income threshold for the top tax rate from $509K to $220K. The $230K income earner had their CG rate increase by 1.56% compared to the same level in 2013.

Whether one has held the stock for twenty years or two weeks, being classed as a capital property sets that the rate will be lower than say interest or employment income.


Cheers


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## humble_pie (Jun 7, 2009)

asterbin5 said:


> The first step is calculate exactly how much capital gain you've earned in the last year (yes, you must pay capital gains tax every year). This sounds easy enough. All you have to do is take the sale price of a capital asset (stock, real estate, etc.) and subtract the original purchase price. But it gets a little trickier if you're not the person who originally purchased the asset or investment.
> 
> But the most important factor that determines your capital gains tax rate is your income tax bracket. The higher your income tax bracket, the more you're going to pay in capital gains tax. As a general rule, you pay capital gains tax at the same rate as income tax for all short-term investments. So if you're in the 10 percent income tax bracket, you'll pay 10 percent for all short-term capital gains. And if you're in the 35 percent income tax bracket, you'll pay 35 percent for all short-term capital gains.




this is the problem with the internet as a media, some texts that see the light of day are wrong. Just plain wrong. Rubbish. Drivel.

tibsen & any others who might glance in here, best to ignore the above nonsense. Although i especially love the part about calculating capital gains when one is never the party who bought the asset in the first place .each:


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## Chetter (Dec 22, 2016)

I read the posts and joined the Adjusted Cost Base.ca but it doesn't make sense to me. Here is my scenario:

August - Bought 17,500 shares at $3.21
December 15th - Sold 1,000 shares at $10.43 - Captial gains $7,212.78
December 16th - Bought 1,000 shares at $10.09
December 22nd - Sold 1,000 shares at $9.38 - Capital gains $5,769.25

All the above were the same stock.

The Adjusted Cost Base website is telling me that my capital gains is $12,982 but to me its like I'm being hit twice. Would you not treat the in/out shares on December 15th and 16th as basically one transaction and only get taxed on the profit made on the differential?


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## Eclectic12 (Oct 20, 2010)

^^^^

Grouping the Dec 15th/16th transactions together ignores the other shares owned. Tax law says the cost has to be distributed across all shares owned, in all taxable accounts at the time the sale was made. 

The Dec 16th buy is going to raise the cost a bit but as there are 16,500 that were bought at a much lower price, the Dec 22nd sale is going to have a gain to it.


Cheers


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## OnlyMyOpinion (Sep 1, 2013)

Dec.15 you sold 1,000sh at $10.43/sh, minus the original cost of $3.21/sh is a gain of $7.22/sh, times 1,000sh should be a gain of $7,220. I assume the commission reduces it by $7.22 to $7,212.78? (I'm used to $9.99)
After that sale you were left with 16,500sh with the cost of $3.21/sh ($52,965), then you bought 1,000sh Dec.16 with a cost of $10.09/sh ($10,090). So now you own 17,500sh with an acb of $63,055 or $3.60/sh.
Dec.22 you sold 1,000 shares at $9.38/sh, minus the acb of $3.60/sh is a gain of $5.78/sh, times 1,000sh should be a gain of $5,780.
So the total gain would be $7,212.78+$5,780= $12,992.78. If there is another $7.22 commission on that second sale, the total will be $12,985.56.
You go forward with 16,500sh with an acb of $3.60/sh.
Do the $3.21/sh and $10.09/sh costs you list include the commission in the purchase cost? They should.


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## Chetter (Dec 22, 2016)

*thanks*

Thanks for the explanation. Wish I had done some homework in advance but now have a better understanding.


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## Chetter (Dec 22, 2016)

*Offsetting the Capital Gains*

I am in the process of entering all my buy/sells into Adjusted Cost Base.ca so I may eventually get the answer myself but what I want to know now is how much of a capital loss would I have to incur to offset the tax I would have to pay on the capital gains? Is it $ - $ or less given that only 50% of the capital gains is taxable?

Using the example above if I have a capital gains in 2016 of $12,000 and want to legally avoid paying any tax, how much of a loss should I incur on my other holdings to offset it?


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## GreatLaker (Mar 23, 2014)

Chetter said:


> I am in the process of entering all my buy/sells into Adjusted Cost Base.ca so I may eventually get the answer myself but what I want to know now is how much of a capital loss would I have to incur to offset the tax I would have to pay on the capital gains? Is it $ - $ or less given that only 50% of the capital gains is taxable?
> 
> Using the example above if I have a capital gains in 2016 of $12,000 and want to legally avoid paying any tax, how much of a loss should I incur on my other holdings to offset it?


$12,000 capital loss is needed. A dollar of capital loss offsets a dollar of capital gains. If you cannot use all your capital losses this year they can be carried back 3 years and carried forward indefinitely. Note that capital losses can only be used to reduce capital gains; they cannot be used to reduce other income.

http://www.cra-arc.gc.ca/tx/ndvdls/...cm/lns101-170/127/lss-ddct/gnrl/menu-eng.html
http://www.taxtips.ca/filing/capitallosses.htm

Taxtips.ca is an excellent site.


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## Eclectic12 (Oct 20, 2010)

For the larger than expected capital gain, keep in mind that capital losses can be used to reduce or eliminate the capital gain. If you have a stock that you don't think is worth keeping and it in a capital loss position - if you sell it by end of trading day today (Dec 23rd), you can use it to reduce the capital gain.

For example, stock A has the a bit over $12K capital gain (CG). Stock B, if sold at today's trading prices will have a $4K capital loss (CL). Sell by end of day today then when filing the 2016 tax return, Schedule 3, part 3 of the tax return will have an entry for each. The CG has the CL subtracted from it so that $12 - $4K = $8K taxable CG.

If you find that you do have a CL but miss the deadline, don't worry about it. Should you sell for the CL in 2017, you get to apply it back three years. The impact will be delayed but you can end up with the same benefit.
http://www.taxtips.ca/filing/capitallosses.htm


It sounds like you aren't familiar with the process so in case you are not aware, the over $12K capital gain is not the same as reporting $12K of income. Schedule 3, part 3 on line 132 will end up with the net of that year's CG and CLs (i.e. CG - CL). Line 197 will total all CG (or CL) across all the sources. 

Where the total is a CG, Line 199 "Taxable Capital Gain" multiplies that positive total from line 197 by 50% ... so where one has a $12K CG, one reports $6K of taxable. CG.



For the part about doing homework, there's usually a good beginner's investing book that includes a chapter on taxes or a book on taxes that may have multiple chapter's on investing.


As the Adjusted Cost Base website should be clear on what investments pay mixed income that affects the capital gains calculations, likely it is correct. However, I made the mistake in the past of thinking REITs paid eligible dividends like say Royal Bank common stock. It made it more difficult at the time of the sale to have years of adjustments to the cost to make. ETFs are another type as not only can they pay the type of income that reduces one's cost base (i.e. return of capital), Canadian ones can pay a phantom distribution that increases the cost base. A lot of investors are not aware of this, where even if they are - the ETF company may or may not be making it easy to find.

Some use the Adjusted Cost Base website simply to take care of this issue.


Cheers


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## Spudd (Oct 11, 2011)

Eclectic12 said:


> As the Adjusted Cost Base website should be clear on what investments pay mixed income that affects the capital gains calculations, likely it is correct. However, I made the mistake in the past of thinking REITs paid eligible dividends like say Royal Bank common stock. It made it more difficult at the time of the sale to have years of adjustments to the cost to make. ETFs are another type as not only can they pay the type of income that reduces one's cost base (i.e. return of capital), Canadian ones can pay a phantom distribution that increases the cost base. A lot of investors are not aware of this, where even if they are - the ETF company may or may not be making it easy to find.
> 
> Some use the Adjusted Cost Base website simply to take care of this issue.


If you pay for a premium membership to the Adjusted Cost Base website, it enables you to automatically import the tax information from CDS Innovations and apply it to your transactions. But you still need to take the step to trigger it, and confirm for yourself that it was done correctly. And if you don't pay for a premium membership, you need to look up the information and apply it to each relevant ETF/REIT manually.


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## Eclectic12 (Oct 20, 2010)

^^^^^

Good to know ... though where manual updates are required then as I am comfortable with spreadsheets & the required formulas (as well as have ETFs in registered accounts), it seems easier for me to apply the numbers to my spreadsheet.

To each their own ...


Cheers


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