Completing Schedule 3

Your principal residence can be any of the following types of housing units:

• a house
• a cottage
• a condominium
• an apartment in an apartment building
• an apartment in a duplex
• a trailer, mobile home, or houseboat

A property has to qualify to be a principal residence.

A property qualifies as your principal residence for any year if it meets all of the following four conditions:

• It is a housing unit, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation you acquire only to get the right to inhabit a housing unit owned by that corporation
• You own the property alone or jointly with another person
• You, your current or former spouse or common-law partner, or any of your children lived in it at some time during the year
• You designate the property as your principal residence

The land on which your home is located can be part of your principal residence. Usually, the amount of land that you can consider as part of your principal residence is limited to half of a hectare (1.24 acres). However, if you can show that you need more land to use and enjoy your home, you can consider more than this amount as part of your principal residence. For example, this may happen if the minimum lot size imposed by a municipality at the time you bought the property is larger than half of a hectare.

Any gain from the disposition of a housing unit (including a rental property) located in Canada, or a right to acquire a housing unit located in Canada, that you owned or held for less than 365 consecutive days before its disposition is deemed to be business income and not a capital gain, unless the property was already considered inventory or the disposition occurred due to, or in anticipation of one of the following life events:

• the death of the taxpayer or a related person
• a related person joining the taxpayer’s household or the taxpayer joining a related person’s household (for example, moving in with a spouse or common-law partner, for the birth of a child, adoption, or care of an elderly parent)
• the breakdown of a marriage or common-law partnership where the taxpayer had been living separate and apart from their spouse or common-law partner for at least 90 days before the disposition
• a threat to the personal safety of the taxpayer or a related person (for example, domestic violence)
• a serious disability or illness of the taxpayer or a related person
• the eligible relocation of the taxpayer or their spouse or common-law partner where the taxpayer’s new home is at least 40 kilometres closer to the new work location or school (generally, an eligible relocation allows the taxpayer to carry on business, be employed or attend full-time post-secondary education)
• the involuntary termination of employment of the taxpayer or their spouse or common-law partner
• the insolvency of the taxpayer
• the destruction or expropriation of the taxpayer’s property (for example, when the property is destroyed due to natural or man-made disaster)

If the property is not considered flipped property, whether the income from selling the property should be treated as business income or as a capital gain depends on the specific details of the situation. If the disposition is considered:

• a capital gain, complete Schedule 3
• business income, complete Form T2125, Statement of Business or Professional Activities

For more information about flipped property, see Residential Property Flipping Rule or Schedule 3.

For more information about business income, see Business income or Guide T4002, Self-employed Business, Professional, Commission, Farming, and Fishing Income.

Use this line to report dispositions of QSBCS. This includes dispositions of QSBCS under a qualifying business transfer (QBT).

See the definition of qualified small business corporation shares for more information on what is considered to be a qualified small business corporation shares. 

Where to report on Schedule 3

For dispositions in Period 1, enter your total proceeds on line 10683 and your total gain or loss on line 10684. 

For dispositions in Period 2, enter your total proceeds on line 10699 and your total gain or loss on line 10700. 

Capital gains deduction

If you have a capital gain when you sell qualified small business corporation shares, you may be eligible for the lifetime capital gains deduction.

Generally, when you dispose of a qualified farm or fishing property (QFFP) , you report any capital gain or loss on  this line. This includes dispositions of certain QFFP under a qualifying business transfer (QBT).

Where to report on Schedule 3

For dispositions in Period 1, enter your total proceeds on line 10685 and your total gain or loss on line 10686.

For dispositions in Period 2, enter your total proceeds on line 10999 and your total gain or loss on line 11000.

Use this line if the capital gain or loss is from a mortgage foreclosure or conditional sales repossession.

If the capital gain or loss is not from the disposition of a QFFP, see Other mortgage foreclosures and conditional sales repossessions

Where to report on Schedule 3

For dispositions in Period 1, enter your total proceeds on line 10687 and your total gain or loss on line 10688. 

For dispositions in Period 2, enter your total proceeds on line 12399 and your total gain or loss on line 12400. 

Capital gains deduction

If you have a capital gain when you sell QFFP, you may be eligible for the lifetime capital gains deduction.

Use this line to report any capital gain or loss when you sell shares or securities that are not described in any other section of Schedule 3, such as:

• units in a mutual fund trust
• publicly traded shares
• shares that qualify as Canadian securities  or prescribed securities  (if they are not qualified small business corporation shares or qualified family farm or fishing corporation shares)
• shares issued by foreign corporations.

You should also use this line if you donate any of the following properties:

• shares listed on a designated stock exchange
• shares of the capital stock of a mutual fund corporation
• units in a mutual fund trust
• interest in a related segregated fund trust

If you donated any of these properties to a qualified donee , complete Form T1170, Capital Gains on Gifts of Certain Capital Property, to calculate the capital gain to report on Schedule 3. For more information, see Guide P113, Gifts and Income Tax.

If you sold any of the shares or units listed above in 2024, you will receive a T5008 slip, Statement of Securities Transactions, or an account statement.

If you buy and sell the same type of property (for example, units of a mutual fund trust or publicly traded shares) over a period of time, you have to calculate the average cost of each property in the group at the time of each purchase to determine the adjusted cost base (ACB). For more information, see Adjusted cost base .

For information on the deferral of capital gains incurred on the disposition of small business investments, see Capital gains deferral for investment in small business.

Employee security options

You may get an option to buy securities through your employer. These securities may be shares of a corporation or units of a mutual fund trust. For more information, see Employee security options.

Stock splits and consolidations

Generally, a stock split takes place if a company's outstanding shares are divided into a larger number of shares, without changing the total market value of the company's holdings. The total market value of each investor's holdings and their proportionate equity in the company are also not affected.

Where to report on Schedule 3 

For dispositions of units or shares in Period 1, enter your total proceeds on line 10689 and your total gain or loss on line 10690.

For dispositions of units or shares in Period 2, enter your total proceeds on line 13199 and total gain or loss on line 13200. 

If you sold real estate or depreciable property in 2024, you must use this line to report your capital gain or loss.

For information related to dispositions of rental properties that are considered flipped property , see Report your real estate income and Tax effects of buying real estate to sell for a profit.

Do not use line 5 to report the sale of personal-use property  (such as a cottage) or the sale of mortgages and other similar debt obligations on real property . Instead, report these transactions on line 8 and line 6 of Part 3, respectively.

Real estate

Real estate includes the following:

• vacant land
• rental property (both land and buildings)
• farm property, including both land and buildings (other than qualified farm or fishing property)
• commercial and industrial land and buildings

For each real property  you sold in 2024 that includes land and a building, you must:

• determine how much of the selling price relates to the land and how much is for the building
• report the sale of your land and building separately on Schedule 3

To help you understand how to report a disposition of real property that includes land and a building, see this example.

Depreciable property

When you dispose of depreciable property , you may have a capital gain. In addition, certain rules on capital cost allowance (CCA)  may require that you add a recapture  of CCA to your income or allow you to claim a terminal loss .

Where to report on Schedule 3

For dispositions in Period 1, enter your total proceeds on line 10691 and your total gain or loss on line 10692.

For dispositions in Period 2, enter your total proceeds on line 13599 and your total gain or loss on line 13800. 

Use this line to report capital gains or losses from the disposition of bonds, debentures, Treasury bills, promissory notes, crypto-assets, and other properties. Other properties include bad debts, foreign currencies, and options, as well as discounts, premiums, and bonuses on debt obligations.

Capital gains arising from donations made to a qualified donee of a debt obligation or right listed on a designated stock exchange, or a prescribed debt obligation, are treated differently. If you made such a donation, complete Form T1170, Capital Gains on Gifts of Certain Capital Property. If you have a capital gain, report the amount calculated on Form T1170 to Schedule 3. For more information on these donations, see Guide P113, Gifts and Income Tax.

If you sold any of the types of properties listed above in 2024, you will receive a T5008 slip, Statement of Securities Transactions, or an account statement.

A linked note is a debt obligation, most often issued by a financial institution, the return on which is linked in some manner to the performance of one or more underlying assets or indexes over the term of the debt obligation.

For transfers of debt obligations (as described in paragraph 7000(1)(d) of the Income Tax Regulations), any gain realized at the time of the assignment or transfer of a linked note is treated as interest that accrued on the debt obligation for a period commencing before the time of the transfer and ending at the time of the transfer.

If you sold a linked note in 2024, you will receive a T5008 slip, Statement of Securities Transactions, and a T5 slip, Statement of Investment Income. Box 30, Equity linked notes interest, of your T5 slip contains the amount of interest income that you have to report on line 12100 of your income tax and benefit return.

The T5008 slip contains information to help you calculate a capital gain or loss, if any. The box on the T5008 slip called "Proceeds of disposition or settlement amount" does not contain any interest income that is already reported on your T5 slip. For instructions on how to calculate your capital gain or loss, see Calculating and reporting your capital gains and losses.

If you bought and sold the same type of property over a period of time, a special rule may affect your capital gain or loss calculation. For more information, see Identical properties. 

What if you have a capital gain or loss from the disposition of:

Where to report on Schedule 3

For dispositions in Period 1, enter your total proceeds on line 10693 and your total gain or loss on line 10694. 

For dispositions in Period 2, enter your total proceeds on line 15199 and your total gain or loss on line 15300. 

You may have held a mortgage on a property but had to repossess the property later because you were not paid all or a part of the amount owed under the mortgage. In this case, you may have to report a capital gain or loss. Report these dispositions using this line.

The following rules also apply when property is repossessed under a conditional sales agreement:

• If, as a mortgagee (person who lends money under a mortgage), you repossess a property because the mortgagor failed to pay you the money owed under the mortgage, you are considered to have purchased the property. At the time of repossession, you do not have a capital gain or loss. Any gain or loss will be postponed until you sell the property.
• If you are the mortgagor and your property is repossessed because you did not pay the money owed under the mortgage, you are considered to have sold the property. Depending on the amount you owed at the time of repossession, you may have a capital gain, a capital loss, or, in the case of depreciable property, a terminal loss . However, if the property is personal use property , you cannot deduct the loss.

Other tax implications
Capital gains from a mortgage foreclosure or conditional sales repossession will be excluded from the capital gain reported on line 12700 for the purpose of determining your net income when calculating your claim for:

• the goods and services tax/harmonized sales tax credit
• the Canada child benefit
• the refundable medical expenses supplement
• the Canada workers benefit
• credits allowed under certain related provincial or territorial programs
• the age amount

Also exclude this income when calculating your social benefits repayment.

Where to report on Schedule 3

For dispositions in Period 1, enter the total proceeds on line 10695 and total gain or loss on line 10696. 

For dispositions in Period 2, enter the total proceeds on line 15499 and total gain or loss on line 15500. 

Use this line to report dispositions of personal-use property  (other than listed personal property). 

When you dispose of personal-use property, you may have a capital gain or loss. To calculate this gain or loss, follow these rules:

• If the adjusted cost base (ACB)  of the property is less than $1,000, its ACB is considered to be $1,000.
• If the proceeds of disposition  are less than $1,000, the proceeds of disposition are considered to be $1,000.
• If both the ACB and proceeds of disposition are $1,000 or less, you do not have a capital gain or a capital loss. Do not report the sale on Schedule 3 when you file your income tax and benefit return.

When you dispose of personal-use property that has an ACB or proceeds of disposition of more than $1,000, you may have a capital gain or loss. You must report any capital gain from disposing of personal-use property.

However, if you have a capital loss , you usually cannot deduct that loss when you calculate your income for the year. In addition, you cannot use the loss to decrease capital gains on other personal-use property. This is because if a property depreciates through personal use, the resulting loss on its disposition is a personal expense.

Loss restrictions do not apply:

• if you disposed of personal-use property that is listed personal property
• to a bad debt owed to you from the sale of a personal-use property to a person you deal at arm's length with

Where to report Schedule 3

For dispositions in Period 1, enter your total gain only on line 10697. 

For dispositions in Period 2, enter your total gain only on line 15800.

To determine the value of many LPP  items, you can have them appraised by a dealer. You can also refer to catalogues for the value of the properties.

How to calculate the gain or loss

Because LPP is a type of personal-use property , the capital gain or loss on the sale of the LPP item is calculated the same way as for personal-use property. For more information, see Line 8 – Personal-use property.

Where to report on Schedule 3

For dispositions in Period 1, enter the net gain only on line 10698.

For dispositions in Period 2, enter the net gain only on line 15900.

What if you have a LPP loss

You have a LPP loss if, in a particular year, your losses from dispositions of LPP are more than your gains from such dispositions. Applying this type of loss is different from applying other capital losses because of the following reasons:

• You can only deduct losses from the disposition of LPP from any gains you had from selling other LPP
• The total LPP losses you deduct in the year cannot be more than your total LPP gains from such dispositions for that year
• You cannot use this type of loss to reduce any capital gains you had from selling other types of property

How to apply LPP losses

If you have an LPP loss in 2024, you can use the loss to reduce gains from dispositions of LPP you had in any of the 3 years before 2024 or the 7 years after.

To carry back your 2024 LPP losses to reduce your LPP net gains from 2021, 2022, and 2023, complete Form T1A, Request for Loss Carryback, and include it with your 2024 income tax and benefit return. Do not file an amended return for the year to which you want to apply the loss.

Individuals (other than trusts) may defer capital gains incurred on certain small business investments disposed of in 2024. This deferral applies to dispositions where you use the proceeds to acquire another small business investment. The adjusted cost base (ACB)  of the new investment is reduced by the capital gain deferred from the initial investment.

You may acquire shares from a spouse, common-law partner, or parent due to circumstances such as a death or the breakdown of a marriage or common-law partnership. For the purposes of the capital gains deferral, the CRA considers you to have acquired such shares at the time and under the same circumstances that the related individual originally acquired them.

The capital gains deferral is also available to individuals involved in pooling their investments with another person or partnership. If you are part of such a qualifying pooling arrangement, call the CRA for more information.

The capital gains deferral applies only to eligible small business corporation shares. Eligible small business corporation shares have the following characteristics:

• They consist of common shares issued by the corporation to you, the investor
• The issuing corporation must be an eligible small business corporation  at the time the shares were issued
• The total carrying value of the assets of the corporation and related corporations cannot exceed $50 million immediately before, and immediately after, the share was issued. "Total carrying value of the assets of the corporation" means the amount at which the assets of the corporation would be valued for the purpose of the corporation’s balance sheet as of that time if it was prepared in accordance with generally accepted accounting principles used in Canada at that time. However, an asset of a corporation that is a share or debt issued by a related corporation is deemed to have a carrying value of nil
• While you hold the shares, the issuing corporation is an eligible active business corporation 

To be able to defer the capital gain, you must have held the eligible small business corporation shares for more than 185 days from the date you acquired them.

The replacement shares have to be acquired at any time in the year in which the disposition is made or within 120 days after the end of that year.

The capital gains deferral is available for the disposition of eligible small business corporation shares made in 2024. The investment can be made by an individual in any particular corporation (or related group).

The permitted deferral of the capital gain from the disposition of eligible small business corporation shares is determined by the following formula:

Capital gains deferral = B x (D ÷ E)
where
B = the total capital gain from the original sale
E = the proceeds of disposition
D = E or the total cost of all replacement shares, whichever is less

For dispositions in 2024, report the total capital gain on lines 10689 and 10690 of Schedule 3 for Period 1, and lines 13199 and 13200 for Period 2. Also report the capital gains deferral on line 16099 of Schedule 3 for Period 1 and line 16100 for Period 2. The capital gain you must report in the year of disposition will be determined by subtracting the capital gain deferral from the total capital gain realized from the disposition.

Adjusted cost base (ACB) reduction

You must use the capital gains deferral to reduce the ACB of each of the eligible replacement shares by the amount determined by the following formula:

ACB reduction = F x (G ÷ H)
where
F = capital gains deferral
G = the cost of replacement shares
H = the total cost of all the replacement shares