As we approach the end of the year, some clients may have questions about capital gains and losses that have occurred in their portfolio.
Watch this video to understand what capital gains and losses are and how they may impact your taxes.
Today we are discussing capital gains and losses.
Capital gains and losses are in reference to a taxable account and today we are discussing them as they relate to stocks, although capital property is another variety of property that they can apply to.
Capital gains and losses occur when you dispose of a stock at higher or lower than your adjusted cost base (ACB).
Your adjusted cost base (ACB) is the total price that you have paid for your stock. In addition, you can add some of the cost that you had to acquire the stock, such as commissions, to the adjusted cost base.
A capital gain occurs when you sell your stock for more than your adjusted cost base. A capital loss occurs when you sell your stock for less than the adjusted cost base.
Let’s say you paid $100 for your stock and you sell it for $150. You would have a capital gain of $50 – the difference between your sale price, and in this example, your adjusted cost base.
Half of the $50 is taxable, so $25 would be taxable for you in the year that you dispose of the security.
Conversely a capital loss would happen if you sold your security for $75.
You’ve incurred a loss of $25 and half of that – $12.50, can be used to reduce any capital gains that you’ve experienced in the year that you’ve sold your security, three years prior, or essentially indefinitely going forward.
Capital gains and losses are in reference to a taxable account (Non-Registered Accounts). They do not apply to Registered Retirement Savings Plans (RRSPs) or Tax-Free Savings Accounts (TFSAs).
Capital gains and losses can be used for tax planning, so please reach out to our team if you have a tax planning situation that you need assistance with. Learn more about the tax planning services we provide here. If you have any further questions about capital gains and losses, contact us here.