Capital Gains Question - Calgarypuck Forums - The Unofficial Calgary Flames Fan Community

red sky · 03-01-2010, 08:00 AM

How would I be taxed on the following situation.

If bought a stock in 2008, say 5,000 shares at $1.20 = $6,000

Then in 2009 bought another 3,000 at $0.80 = $2,400

If I then sold 3,000 at $1.00 in 2009 for proceeds = $3,000

So would I have a capital gain of $600 or a capital loss of $600 or do I do a weighted average and have no capital gains or loss?

Thanks!

SeeGeeWhy · 03-01-2010, 08:05 AM

Quote:

Originally Posted by red sky

How would I be taxed on the following situation.

If bought a stock in 2008, say 5,000 shares at $1.20 = $6,000

Then in 2009 bought another 3,000 at $0.80 = $2,400

If I then sold 3,000 at $1.00 in 2009 for proceeds = $3,000

So would I have a capital gain of $600 or a capital loss of $600 or do I do a weighted average and have no capital gains or loss?

Thanks!

I'm no accountant, but this is what I think.

Your adjusted cost base becomes 1.05 after the second transaction. You then sell 3,000 shares at a loss of 0.05/share, so you've got a capital loss of $150 on the books.

I think you can use apply this loss backwards 3 years (someone will for sure clarify this for me), use it this year, or carry it forward indefinitely. It can only be used to offset capital gains, not earned income (salary, interest, etc).

red sky · 03-01-2010, 08:07 AM

Thanks, sorry my weighted average comment would not equal 1.00 so I am wrong to say no capital gain/loss.

So if I can carry it back 3 years I could theoretically go back to any purchases from 2006 if I never sold?

Ducay · 03-01-2010, 09:05 AM

Your question is worded weird, but you can take the capital loss you just incurred ($150 and apply it against any other capital gains you had in 2009, 2008, 2007, or 2006.

You have to apply it against capital gains you've realized. So if on your 2006 taxes you reported (for example) $1000 capital gain. You can carry the 2009 $150 loss back against that gain. (so it becomes $850 capital gain in 2006).

If you havn't sold the shares, you havn't incurred a loss. The loss can also be carried forward against gains for up to 7 years.

Agamemnon · 03-01-2010, 09:47 AM

That's an interesting question. When you buy two lots of shares at separate times at different prices, and then sell a chunk down the road (but not all), do you figure the 'cost' of the sold shares as the average of the first two purchases?

red sky · 03-01-2010, 10:25 AM

In doing some more research it seems like it is the average cost used to calculate the capital gains.

Agamemnon · 03-01-2010, 10:51 AM

Quote:

Originally Posted by red sky

In doing some more research it seems like it is the average cost used to calculate the capital gains.

Interesting. I'm surprised that I wouldn't be able to, for example;

Buy 1000 shares of X Stock at $1.00

Buy another 1000 shares of X Stock at $1.50

Sell 1000 shares of X Stock at $2.00

It sounds like I can't designate the second share purchase as the exact shares being sold (ie, bought at 1.50 sold at 2.00), reducing your capital gains compared to selling the chunk bought at 1.00 and sold at 2.00. Maybe I'm being confusing.

I guess the issue is if you use the same account to buy the shares and they end up sitting in the same pile, ONLY the average cost is used to determine capital gains/losses on all subsequent sales/purchases?

sixpacked · 03-01-2010, 11:05 AM

Quote:

Originally Posted by Agamemnon

Interesting. I'm surprised that I wouldn't be able to, for example;

Buy 1000 shares of X Stock at $1.00

Buy another 1000 shares of X Stock at $1.50

Sell 1000 shares of X Stock at $2.00

It sounds like I can't designate the second share purchase as the exact shares being sold (ie, bought at 1.50 sold at 2.00), reducing your capital gains compared to selling the chunk bought at 1.00 and sold at 2.00. Maybe I'm being confusing.

I guess the issue is if you use the same account to buy the shares and they end up sitting in the same pile, ONLY the average cost is used to determine capital gains/losses on all subsequent sales/purchases?

The principle at question is "Identical Propeties", as long as they are the same class/type, etc of stock you must use the average cost.

http://www.cra-arc.gc.ca/tx/ndvdls/t...cltng-eng.html

Agamemnon · 03-01-2010, 11:06 AM

Quote:

Originally Posted by sixpacked

The principle at question is "Identical Propeties", as long as they are the same class/type, etc of stock you must use the average cost.

http://www.cra-arc.gc.ca/tx/ndvdls/t...cltng-eng.html

Cool, thanks!

Bobblehead · 03-01-2010, 11:12 AM

Quote:

Originally Posted by SeeGeeWhy

I'm no accountant, but this is what I think.

Your adjusted cost base becomes 1.05 after the second transaction. You then sell 3,000 shares at a loss of 0.05/share, so you've got a capital loss of $150 on the books.

I think you can use apply this loss backwards 3 years (someone will for sure clarify this for me), use it this year, or carry it forward indefinitely. It can only be used to offset capital gains, not earned income (salary, interest, etc).

This is correct

Quote:

Originally Posted by Ducay

Your question is worded weird, but you can take the capital loss you just incurred ($150 and apply it against any other capital gains you had in 2009, 2008, 2007, or 2006.

You have to apply it against capital gains you've realized. So if on your 2006 taxes you reported (for example) $1000 capital gain. You can carry the 2009 $150 loss back against that gain. (so it becomes $850 capital gain in 2006).

If you havn't sold the shares, you havn't incurred a loss. The loss can also be carried forward against gains for up to 7 years.

The bolded part is incorrect, Capital Losses can be carried forward indefinitely. The rest is correct.

Another source: http://www.taxtips.ca/filing/capitallosses.htm

red sky · 03-01-2010, 01:11 PM

So what if throughout the year you bought and sold a certain stock but still have so shares left over.

For example and simplicity:

In 2009, in the following order:

A. Bought 10 Shares @ $10/share = $100
B. Bought 5 Shares @ $9/share = $45
C. Sold 5 Shares @ $10/share = $50
D. Bought 5 Shares @ $8/share = $40
E. Sold 5 Shares @ $9/share $45

Do you just base this on the entire cost or do you look at it sequentially?

MoneyGuy · 03-01-2010, 01:56 PM

Quote:

Originally Posted by Ducay

The loss can also be carried forward against gains for up to 7 years.

Not true. Capital losses can be carried forward indefinitely to be used against future capital gains.

When shares (identical property) are sold, you use the average cost in calculating gains and losses. For example, if you bought one share at $1 and one share at $1.20 and later sold one share, your cost for this calculation is $1.10.

If the OP has any specific questions, feel free to PM me.

Edit: I see someone has already pointed out the error.

I think my example will answer Red Sky's question immediately above.

red sky · 03-01-2010, 02:08 PM

Quote:

Originally Posted by MoneyGuy

I think my example will answer Red Sky's question immediately above.

Unforunately it doesn't really answer it as my situation is a bit more complex... unless of course the timing isn't important and I would just take the average cost throughout the year.

Azure · 03-01-2010, 02:10 PM

Capital gain taxes are stupid and the person who invented them should be kicked in the balls.

MoneyGuy · 03-01-2010, 04:20 PM

Quote:

Originally Posted by red sky

Unforunately it doesn't really answer it as my situation is a bit more complex... unless of course the timing isn't important and I would just take the average cost throughout the year.

Sure it does if you do the math. I gave you the basic info.

Quote:

Originally Posted by Azure

Capital gain taxes are stupid and the person who invented them should be kicked in the balls.

What do you suggest should replace cap gains taxes? What exactly is your issue? I have some ideas for changes but I think the system basically works. Maybe you just don't like the idea of paying taxes?!?

Shazam · 03-01-2010, 04:23 PM

Quote:

Originally Posted by Azure

Capital gain taxes are stupid and the person who invented them should be kicked in the balls.

What's your stance on the double taxation of dividends?

Azure · 03-01-2010, 04:33 PM

Why must capital gains taxes be replaced? Whats wrong with people making money on their investments and being able to keep it?

Its not that I hate all taxes, I just think we should be encouraging people to invest their money by allowing them to keep most if not all of their return.

Slava · 03-01-2010, 04:34 PM

Quote:

Originally Posted by Shazam

What's your stance on the double taxation of dividends?

How do you figure they are taxed doubly right now?

Azure · 03-01-2010, 04:37 PM

Quote:

Originally Posted by Shazam

What's your stance on the double taxation of dividends?

Tough call. I think its stupid that the money is technically being taxed twice, but on the other hand I like the fact that it can encourage the company to invest that money into other projects instead of paying it out to the shareholders.

But that is just me being an evil capitalist that wants companies to invest their money into building the economy.

On the other hand the shareholders deserve to make money too.

Is there double taxation of dividends in Canada? I know the US has it.

Shazam · 03-01-2010, 04:40 PM

Quote:

Originally Posted by Azure

Tough call. I think its stupid that the money is technically being taxed twice, but on the other hand I like the fact that it can encourage the company to invest that money into other projects instead of paying it out to the shareholders.

But that is just me being an evil capitalist that wants companies to invest their money into building the economy.

On the other hand the shareholders deserve to make money too.

Is there double taxation of dividends in Canada? I know the US has it.

Damn, I was hoping for something more angry.