Definitions for capital gains

Abbreviations

The following is a list of some of the abbreviations that are used in Guide T4037, Capital Gains:

ABIL
Allowable business investment loss
ACB
Adjusted cost base
CCA
Capital cost allowance
CNIL
Cumulative net investment loss
FMV
Fair market value
LPP
Listed personal property
RFL
Restricted farm loss
UCC
Undepreciated capital cost

Adjusted cost base (ACB)

This is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.

The cost of a capital property is its actual or deemed cost, depending on the type of property and how you acquired it. It also includes capital expenditures, such as the cost of additions and improvements to the property. You cannot add current expenses, such as maintenance and repair costs, to the cost base of a property.

For more information on ACB, see Archived Interpretation Bulletin IT-456R, Capital Property – Some Adjustments to Cost Base, and its Special Release

Advantage

The advantage is generally the total value of any property, service, compensation, use or any other benefit that you are entitled to as partial consideration for, or in gratitude for, the gift. The advantage may be contingent or receivable in the future, either to you or a person or partnership not dealing at arm’s length with you.

The advantage also includes any limited recourse debt in respect of the gift at the time it was made. For example, there may be a limited recourse debt if the property was acquired as part of a gifting arrangement that is a tax shelter. In this case, the eligible amount of the gift will be reported in box 13 of Form T5003, Statement of Tax Shelter Information. For more information on tax shelters and gifting arrangements, see Guide T4068, Guide for the Partnership Information Return (T5013 Forms).

Allowable capital loss

This is, for a tax year, your capital loss for the year multiplied by the inclusion rate for that year. For 2001 and later years, the inclusion rate is 1/2.

Arm's length

This refers to a relationship or a transaction between unrelated persons who act in their separate interests. An arm's length transaction is generally a transaction that reflects ordinary commercial dealings between parties acting in their separate interests.

Related persons are not considered to deal with each other at arm's length. Related persons include individuals connected by blood relationship, marriage, common-law partnership or adoption (legal or in fact). A corporation and another person or two corporations may also be related persons.

Unrelated persons may not be dealing with each other at arm’s length at a particular time. Each case will depend upon its own facts. The following criteria will be used to determine if the parties to a transaction are not dealing at arm’s length:

For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

Business investment loss

See Lines 21699 and 21700 – Business investment loss.

Canadian-controlled private corporation

This is a private corporation that is a Canadian corporation other than any of the following:

  1. a corporation controlled, directly or indirectly in any way, by one or more non-resident persons, by one or more public corporations (other than a prescribed venture capital corporation), by one or more corporations described in paragraph c), or by any combination of the above
  2. a corporation that would be controlled by one person if that one person owned all the shares of capital stock of any corporation that are owned by any non-resident person, by any public corporation (other than a prescribed venture capital corporation), or by a corporation described in paragraph c)
  3. a corporation, a class of the shares of capital stock of which is listed on a designated stock exchange

Canadian security

This is any of the following:

Prescribed securities are not considered to be Canadian securities.

Capital cost allowance (CCA)

In the year you buy a depreciable property, such as a building, you cannot deduct its full cost. However, since this type of property wears out or becomes obsolete over time, you can deduct its capital cost over a period of several years. This deduction is called CCA. You usually group depreciable properties into classes. You have to base your CCA claim on the rate assigned to each class of property.

Capital gain

You have a capital gain when you sell, or are considered to have sold, a capital property for more than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Capital loss

You have a capital loss when you sell, or are considered to have sold, a capital property for less than the total of its adjusted cost base and the outlays and expenses incurred to sell the property.

Capital property

This includes depreciable property, and any property which, if sold, would result in a capital gain or a capital loss. You usually buy it for investment purposes or to earn income. Capital property does not include the trading assets of a business, such as inventory. Some common types of capital property include:

Common-law partner

This is a person who is not your married spouse, but with whom you are living in a conjugal relationship and at least one of the following conditions applies:

a. This person has been living with you in a conjugal relationship for at least 12 continuous months

Note

In this definition, 12 continuous months includes any period where you were separated for less than 90 days because of a breakdown in the relationship.

b. This person is the parent of your child by birth or adoption

c. This person has custody and control of your child (or had custody and control immediately before the child turned 19 years of age) and your child is wholly dependent on that person for support

Deemed acquisition

This expression is used when you are considered to have acquired property, even though you did not actually buy it.

Deemed cost

This refers to the price of property you are considered to have acquired, even though you did not actually buy it.

Deemed disposition

This expression is used when you are considered to have disposed of property, even though you did not actually sell it.

Deemed proceeds of disposition

This expression is used when you are considered to have received an amount for the disposition of property, even though you did not actually receive the amount.

Depreciable property

This is usually capital property used to earn income from a business or property. The capital cost can be written off as capital cost allowance (CCA) over a number of years.

Disposition (dispose of)

This is usually an event or transaction where you give up possession, control, and all other aspects of property ownership.

Eligible amount of the gift

This is generally the amount by which the fair market value (FMV) of the gifted property exceeds the amount of an advantage, if any, received or receivable for the gift. For more information, see Guide P113, Gifts and Income Tax.

Eligible active business corporation

Generally, this is a taxable Canadian corporation, where all or substantially all of the fair market value (FMV) of its assets are used principally in an active business carried on primarily in Canada by the corporation or a related active business corporation while the investor holds the shares, or for at least 730 days of the ownership period. It can also be shares of, or a debt issued by, other related active business corporations or a combination of such assets, shares, or debt.

This is p

Note

An eligible active business corporation does not include:

  • a professional corporation
  • a specified financial institution
  • a corporation whose principal business is leasing, renting, developing, or selling real property that it owns or any combination of these activities
  • a corporation where more than 50% of the FMV of its property (net of debts incurred to acquire the property) is attributable to real property

Eligible capital property

This is property that does not physically exist but gives you a lasting economic benefit. Examples of this kind of property are goodwill, customer lists, trademarks, and milk quotas. For 2017 and following tax years, this property is now included in capital cost allowance Class 14.1.

Eligible small business corporation

Generally, this is a Canadian-controlled private corporation, where all or substantially all of the FMV of its assets are used principally in an active business that is carried on primarily in Canada by the corporation or an eligible small business corporation related to it. It can also be shares of, or a debt issued by, other related eligible small business corporations or a combination of such assets, shares, or debt. The issuing corporation must be an eligible small business corporation at the time the shares were issued.

Note

An eligible small business corporation does not include:

  • a professional corporation
  • a specified financial institution
  • a corporation whose principal business is leasing, renting, developing, or selling real property that it owns or any combination of these activities
  • a corporation where more than 50% of the FMV of its property (net of debts incurred to acquire the property) is attributable to real property

Excepted gift

This is a gift of a share you made to a donee with whom you deal at arm's length. The donee cannot be a private foundation. If the donee is a charitable organization or public foundation, it will be an excepted gift if you deal at arm's length with each director, trustee, officer, and official of the donee.

For more information, see Guidance – Non-qualifying security.

Fair market value (FMV)

This is usually the highest dollar value you can get for your property in an open and unrestricted market, between a willing buyer and a willing seller who are acting independently of each other.

Flipped property

This is when property of a taxpayer is a housing unit (including rental properties) located in Canada, or a right to acquire a housing unit located in Canada, that is not already considered to be inventory of the taxpayer and was owned or held by the taxpayer for less than 365 consecutive days prior to the disposition unless the disposition can reasonably be considered to occur due to, or in anticipation of certain life events.

For more information (including the list of life events), see Property flipping.

Flow-through entity

For information, see What is a flow-through entity?.

Inclusion rate

Generally, the inclusion rate for 2023 is 1/2. This means that you multiply your capital gain for the year by this rate to determine your taxable capital gain. Similarly, you multiply your capital loss for the year by 1/2 to determine your allowable capital loss. For a list of previous year inclusion rates, see Inclusion rates for previous years.

Listed personal property (LPP)

This is a type of personal-use property. The principal difference between LPP and other personal-use properties is that LPP usually increases in value over time. LPP includes all or any part of any interest in, or any right to, the following properties:

Net capital loss

Generally, if your allowable capital losses are more than your taxable capital gains, the difference between the two becomes part of the calculation of your net capital loss for the year.

Non-arm's length

This generally refers to a relationship or transaction between persons who are related to each other. However, a non-arm's length relationship might also exist between unrelated individuals, partnerships, or corporations, depending on the circumstances. For more information, see Arm's length.

Non-qualifying real property

Generally, this is real property that you or your partnership disposed of after February 1992 and before 1996.

It also generally includes any of the following properties you or your partnership disposed of after February 1992 and before 1996, if its fair market value is derived principally (more than 50%) from real property:

Non-qualifying securities

These are securities you donated to a qualified donee. Non-qualifying securities generally include:

Non-qualifying securities exclude:

For more information on non-qualifying securities, see Guidance – Non-qualifying security.

Outlays and expenses

These are amounts that you incurred to sell a capital property. You can deduct outlays and expenses from your proceeds of disposition when calculating your capital gain or loss. You cannot reduce your other income by claiming a deduction for these outlays and expenses. These types of expenses include fixing-up expenses, finders' fees, commissions, brokers' fees, surveyors' fees, legal fees, transfer taxes, and advertising costs.

Personal-use property

This refers to items that you own primarily for the personal use or enjoyment of your family and yourself. It includes all personal and household items, such as furniture, automobiles, boats, a cottage, and other similar properties.

Prescribed security

Generally, this includes the following:

A prescribed security is not considered to be a Canadian security.

Proceeds of disposition

This usually is the amount you received or will receive for your property. In most cases, it refers to the sale price of the property. This could also include compensation you received for property that has been destroyed, expropriated, or stolen.

Public corporation

This is a corporation that is resident in Canada and meets one of the following conditions:

Qualified donees

These are the following:

Note

If a university has applied for registration before February 27, 2018, and is registered by the Minister on or after that day, it is considered to have applied for registration. Any university named in Regulation Schedule VIII at the end of February 26, 2018, is also considered to have applied for registration.

Qualified farm or fishing property

This is certain property you or your spouse or common-law partner owns. It is also certain property owned by a family-farm or fishing partnership in which you or your spouse or common-law partner holds an interest.

Qualified farm or fishing property (QFFP) includes the following:

For more information on what is considered to be qualified farm or fishing property, see one of the following guides:

Qualified small business corporation shares

A share of a corporation will be considered to be a qualified small business corporation share if all the following conditions are met:

Generally, when a corporation has issued shares after June 13, 1988, either to you, to a partnership of which you are a member, or to a person related to you, a special situation exists. The CRA considers that, immediately before the shares were issued, an unrelated person owned them. As a result, to meet the holding-period requirement, the shares cannot have been owned by any person other than you, a partnership of which you are a member, or a person related to you for a 24-month period that begins after the shares were issued and that ends when you sold them.

However, this rule does not apply to shares issued in any of the following situations:

Real property

This is property that cannot be moved, such as land or buildings. The CRA commonly refers to such property as real estate. This also is known as "immovable property."

Recapture

When you sell a depreciable property for less than its capital cost, but for more than the undepreciated capital cost (UCC) in its class, you do not have a capital gain. However, if there is a negative UCC balance at the end of the year, this balance is a recapture of capital cost allowance. You have to include this amount in income for that year. For more information on recapture, see Depreciable property.

Small business corporation

This is a Canadian-controlled private corporation in which all or most (90% or more) of the fair market value of its assets:

Spouse

This applies only to a person to whom you are legally married.

Taxable capital gain

This is the portion of your capital gain that you have to report as income on your income tax and benefit return.

If you realize a capital gain when you donate certain properties to a qualified donee or make a donation of ecologically sensitive land, special rules will apply. For more information, see Gifts of shares, stock options, and other capital property.

Terminal loss

This occurs when you have an undepreciated balance in a class of depreciable property at the end of the tax year or fiscal year, and you no longer own any property in that class. You can deduct the terminal loss when you calculate your income for the year. For more information on terminal losses, see Depreciable property.

Undepreciated capital cost (UCC)

Generally, UCC is equal to the total capital cost of all the properties of the class minus the total capital cost allowance you claimed in previous years. If you sell depreciable property in a year, you also have to subtract from the UCC one of the following two amounts, whichever is less:

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