Flow-through entities
The topics below provide information on the types of investments that are considered flow-through entities. They also provide information on how to calculate and report the capital gain or loss resulting from the disposition of shares of, or interests in, a flow-through entity.
The information also applies if, for the 1994 tax year, you filed Form T664, Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, for your shares of, or interest in, a flow-through entity. In addition, if you have any remaining unused exempt capital gains balance (ECGB), there is a topic that provides information on how it can be used.
On this page
You are a member of, or an investor in, a flow-through entity if you own shares or units of, or an interest in, one of the following:
- an investment corporation
- a mortgage investment corporation
- a mutual fund corporation
- a mutual fund trust
- a related segregated fund trust
- a partnership
- a trust governed by an employees' profit sharing plan
- a trust maintained primarily for the benefit of employees of one corporation or more than one that do not deal at arm's length with each other, where one of the main purposes of the trust is to hold interests in shares of the capital stock of the corporation or corporations, as the case may be, or any corporation not dealing at arm's length with the trust
- a trust established for the benefit of creditors in order to secure certain debt obligations
- a trust established to hold shares of the capital stock of a corporation in order to exercise the voting rights attached to such shares
When you filed Form T664, Election to report a Capital Gain on Property Owned at the End of February 22, 1994, for your shares of, or interest in, a flow-through entity, the elected capital gain you reported created an exempt capital gains balance (ECGB) for that entity. For more information on the sale of this type of property, see Disposing of your shares of, or interest in, a flow-through entity.
When you filed Form T664 for your shares of, or interest in, a flow-through entity, the elected capital gain you reported created an ECGB for that entity.
Note
Generally, your ECGB expired after 2004. If you did not use all of your ECGB by the end of 2004, you can add the unused balance to the adjusted cost base of your shares of, or interest in, the flow-through entity.
Example
Andrew filed Form T664 for his 800 units in a mutual fund trust with his 1994 income tax and benefit return. He designated the fair market value of the units at the end of February 22, 1994, as his proceeds of disposition. Andrew claimed capital gains reductions of $500 in 1997 and $600 in 1998. At the end of 2003, his ECGB was $2,250. In 2004, he had a $935 capital gain from the sale of 300 units. This left him with an unused ECBG of $1,315 at the end of 2004. In future years, he can only add the unused ECGB to the cost of any remaining units.
The unused ECGB expired after 2004 so Andrew can add this amount to the adjusted cost base of his shares of, or interest in, the flow-through entity.
For information on the sale of this kind of property, see Disposing of your shares of, or interest in, a flow-through entity.
When you dispose of your shares of, or interest in, a flow-through entity, calculate the capital gain or loss in the same way as with any other disposition of capital property (proceeds of disposition minus the adjusted cost base (ACB) and outlays and expenses for the sale).
Completing Schedule 3
Report these dispositions on Schedule 3 as follows:
- for shares of a flow-through entity, use the Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares, and other shares section
- for an interest in a flow-through entity, use the Bonds, debentures, promissory notes, crypto-assets, and other similar properties section
If you filed Form T664 for your shares of, or interest in, a flow-through entity and the proceeds of disposition were more than the fair market value, the ACB of your investments may be affected. For more information, see Property for which you filed Form T664 or T664 (Seniors).
Certain circumstances may create a special situation for a flow-through entity described in items 1 to 6 of What is a flow-through entity?. This happens if you dispose of your remaining shares of, or interest in, such an entity in the 1994 to 2023 tax years and have filed Form T664. If this is the case, in the year you dispose of the shares, use the exempt capital gains balance (ECGB) available for the entity immediately before the disposition to increase the ACB of the shares or interest.
The ACB adjustment will either reduce your capital gain or will create or increase your capital loss from disposing of the shares or interest in the flow-through entity.
Forms and publications
Related Topics
Page details
- Date modified: