A capital gain refers to a gain from the disposition of property that would not otherwise be included in ordinary income. Some other categories are excluded from the definition of capital gain, for example, goodwill and insurance policies. Some examples of common capital gain or loss properties are shares of companies and real estate other than a principal residence. Here are some of the features of capital gains and losses in Canada:

• Taxable at the rate of 50% of the normal tax rate. This means that one-half of a capital gain is included in ordinary income.
  
  
• Capital losses can only be deducted from capital gains. In a particular taxation year, you first subtract capital losses from capital gains and then include one-half of the net amount in ordinary income. Any excess capital losses that cannot be deducted from capital gains are carried back to prior years or forward to future years.
  
  
• Capital losses can be carried back for up to three years and forward indefinitely in order to be netted against capital gains in any of those other years.
  
  
• A capital gain or loss is calculated by comparing the proceeds of sale of the property with the "adjusted cost base" which generally refers to its original cost. These two items are often in different time periods, so for example, if a stock is sold in 2009 but was originally bought in 2001, the capital gain or loss must be calculated by comparing the amount received and paid in these 2 time periods.
  
  
• No capital gains occur on sales of stock or mutual funds held within an RRSP.
  
  
• There is a lifetime capital gains exemption of $750,000 on the sale of a Canadian-controlled small business corporation or of qualified farm property, since March 19, 2007. The exemption can be claimed only by individuals resident in Canada throughout the year.
  
  
• Many variations of tax planning are possible in the area of capital gains and losses. For example, a taxpayer may want to sell some stock near the end of the year so that he can realize a capital loss.
  
  

There may not be any point in waiting until later to do this, if the stock has little chance of recovering its value. However, it would be important to have other capital gains against which the loss can be applied, either in the current or preceding 3 years.

There are many other situations involving capital gains and losses. Please contact Simkover and Associates at 905-943-4046 if you need further accounting services or advice in relation to this topic. Click here for additional contact information