Attribution of Investment Income

Complex attribution rules prevent spouses from simply splitting joint investment income equally between them. Joint investment income includes interest on joint bank accounts, investment income deposited into joint brokerage accounts, income from jointly-owned mutual funds and rental real estate, as well as capital gains from the disposition of jointly-owned investments.

The attribution rules require that joint investment income be allocated between spouses based on each individual's contribution of the investment funds. Spouses with joint investments should be prepared to show Canada Revenue Agency the source of the joint investment funds in support of their allocation of the investment income. This requires both spouses to keep track of the source of funds used to acquire the jointly-owned investments.

The Institute of Chartered Accountants of Alberta provides information for Tax Tips as a public service.

Taxation of Capital Gains

The phrase “capital gains” is one that should be understood thoroughly.
In broad terms, “capital gains” are any profits earned from the sale of assets that are capital property (for example, property not held for resale). If you buy shares, bonds, mortgages, or property and sell them at a profit, there is usually a capital gain.

For dispositions in 2003, one-half of the resulting capital gains are taxable.
Capital gains of up to $500,000 on certain private Canadian corporation shares and certain farm properties may be eligible for a lifetime cumulative exemption from tax. In addition, the gain on an investment of up to $2,000,000 in certain private Canadian corporations may be deferred if the proceeds are reinvested in another eligible corporation within a specified time. If you are planning to sell such shares or farm property, seek the advice of a Chartered Accountant. It may save you money that you would otherwise pay in taxes.
In addition, it may be more tax effective to hold properties that will yield capital gains outside of your RRSP, and other assets (such as interest-bearing securities) inside your RRSP. Contact a Chartered Accountant to help you revise your tax planning strategies to take advantage of the generally lower tax rate for capital gains.

The Institute of Chartered Accountants of Alberta provides information for Tax Tips as a public service.

Capital Losses

There are four types of capital losses:
• Listed personal property
• Personal use property
• Shares or debt of Canadian Controlled Private Corporations (CCPC)
• Other capital properties

Losses from listed personal property (such as artworks, jewelry, stamps, coins) are only deductible from similar gains. Losses from the sale of personal use properties (such as a car or boat) are not deductible. Losses from the sale of CCPC shares or debt are generally considered “Allowable Business Investment Losses” (ABIL) and may be deductible against other sources of income. (The ability to claim the ABIL may be limited by previous years' capital gains exemption claims.) Losses on the sale of other capital properties must first be netted against gains in the year, but may then be carried back three years (use Form T1-A) or forward indefinitely to claim against capital gains.

The Institute of Chartered Accountants of Alberta provides information for Tax Tips as a public service.

Writing off Shares

If at the end of a year, you own shares of a bankrupt or insolvent corporation, you may be able to realize a capital loss on such shares. You may deduct this capital loss but only to the extent you have realized capital gains on other property.

The capital loss, calculated as a disposition of such shares for nil proceeds, is realized at the end of the year if you elect to do so in your income tax return for the year and:
1. The corporation has during the year become a bankrupt, or
1. The corporation is insolvent and a winding-up order under the Winding up Act has been made in the year, or
1. At the end of the year
• The corporation is insolvent, and
• Neither the corporation nor a corporation controlled by it carries on business, and
• The fair market value of the share is nil, and
• It is reasonable to expect that the corporation will be dissolved or wound up and will not commence to carry on business.

As this loss may also be an allowable business investment loss that is deductible not only against capital gains but from other income, you may wish to consult a Chartered Accountant before reporting such a loss on your tax return.

The Institute of Chartered Accountants of Alberta provides information for Tax Tips as a public service.