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 The
Money Management Newsletter: General
Interest
Spring ahead into tax season
By Rob Whipp
Money Management Newsletter
If you invest money outside of an RRSP, here are some things to remember with respect to capital gains that are important for your tax return preparation.
Capital gains
A capital gain will occur when you dispose of an investment for more than it's adjusted cost base (previous articles have dealt with how to calculate this). For tax purposes, a taxable disposition of an investment occurs when you redeem it, change the registration to include a joint owner other than your spouse, change the registration into another person's name, do an "in-kind" transfer from an open account into an RRSP, die or become a non-resident of Canada. When transferring capital property between spouses you can either transfer it at market value and declare any accrued capital gains or transfer it at the adjusted cost base and carry the gains forward.
It is important to note that you will not receive any tax slips for the above noted types of capital gains and it is up to you to keep track of them. Don't forget that a redemption includes any mutual fund switching you may have done during the tax year. A switch involves the redemption of one fund and the purchase of another. Many people also use a systematic withdrawal plan from mutual funds to provide regular income however each withdrawal is a redemption and will include the tax free return of capital and create either a capital gain or loss. Numerous calculations will be required to determine tax liabilities so make sure you provide all investment statements to your tax preparer if you don't feel up to the task yourself.
Capital losses
Capital losses are only deductible against capital gains so don't forget to carry forward any unused losses from previous years to reduce current capital gains or carry current losses back for up to three years to reduce capital gains on previous tax returns. Again make sure you give a tax preparer all historical information in this regard, and not just current information.
In Trust Accounts
If you use in trust accounts as a savings vehicle for children or grandchildren, remember that you are liable for any interest or dividend income while capital gains can be taxed in the child's hands. Check the built up capital gains in the account and trigger them periodically when they get close to the basic personal exemption amount to avoid a capital gains liability for the child when ownership is eventually transferred. You can trigger the gain by simply selling the investment and then repurchasing it. Any gain would be reported on the child's return but would be offset by the basic personal exemption. Also make sure that if you are the contributor to an in trust account, somebody else is the named trustee for the beneficiary child so there is a clear separation of you from the account. If Revenue Canada feels that the contributor could redeem the property for his/her own use they may attribute all capital gains back to the contributor.
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