Special rules and other transactions
This page explains some of the special rules that may apply when you calculate your capital gain or loss. It also explains how to report some of the less common capital transactions.
Adjusted cost base (ACB)
In some cases, special rules may apply that will allow you to consider the cost of a property to be an amount other than its actual cost. This section explains these rules:
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Identical properties
Properties of a group are considered to be identical if each property in the group is the same as all the others. The most common examples of identical properties are shares of the same class of the capital stock of a corporation or units of a mutual fund trust.
You may buy and sell several identical properties at different prices over a period of time. If you do this, you have to calculate the average cost of each property in the group at the time of each purchase to determine your adjusted cost base (ACB) . Dispositions of identical properties do not affect the ACB.
The average cost is calculated by dividing the total cost of identical properties purchased (this is usually the cost of the property plus any expenses involved in acquiring it) by the total number of identical properties owned.
Any amount reported in box 42, Amount resulting in cost base adjustment, of the T3 – Statement of Trust Income Allocations and Designations slip represents a change in the capital balance of the mutual fund trust identified on the slip. This amount is used when calculating the ACB reported on Schedule 3, Capital Gains or Losses, for the property in the year of disposition.
If box 42 contains a negative amount, add this amount to the ACB of the units of the trust identified on the T3 slip.
If box 42 contains a positive amount, subtract this amount from the ACB of the units of the trust identified on the T3 slip.
If the ACB of the trust units is reduced below zero during the tax year, the negative amount is deemed to be a capital gain in the year. The ACB of the trust units is deemed to be zero. On Schedule 3, enter the amount of the capital gain on line 10690 for disposition of Period 1 and on line 13200 for disposition of Period 2. Place a zero on lines 10689 and 13199, depending on the period, since there is no actual sale of units. For more information and an example of the calculation, go to Tax Treatment of Mutual Funds.
Note
Generally, the following properties are not considered identical properties:
- securities acquired under an employee option agreement that are subject to the benefit deferral or are designated and disposed of within 30 days
- certain employer shares received by an employee as part of a lump-sum payment upon withdrawal from a deferred profit sharing plan
As a result, the ACB averaging rule described above does not apply to these types of securities. Each of these securities will have its own ACB determined in the usual way.
You also use this method to calculate the average cost of identical bonds or debentures you bought after 1971. However, the average cost is based on the principal amount for each identical property, that is, the amount before any interest or premiums are added.
A bond, debenture, or similar debt obligation that a debtor issues is considered to be identical to another if both of the following conditions are met:
- the same debtor issues both securities
- all the attached rights are the same
The principal amount of individual debt obligations being the same is not enough for such debts to be considered identical properties. They must still meet the two conditions listed above.
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Example 1
Over the years, you have bought and sold common shares of STU Ltd. This example shows how, after each purchase, the ACB of your shares changes.
In 2001, you purchased 100 shares for $1,500. The ACB is therefore $15.00 ($1,500 ÷ 100).
In 2006, you purchased an additional 150 shares for $3,000. The new ACB is calculated by dividing the total cost of the shares of STU Ltd. ($1,500 + $3,000 = $4,500) by the total number of shares you have purchased (100 + 150 = 250). Therefore, the ACB is $18.00 ($4,500 ÷ 250).
In 2008, you sold 200 shares for $3,600. The ACB remains at $18.00 per share.
In 2024, you purchased 350 shares for $7,350. The new ACB is $20.63 [($900 + $7,350) ÷ (50 + 350)].
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Example 2
In 2001, you bought units of a mutual fund trust. When you bought them, you chose to reinvest your annual income distributions in more units. This example shows how the ACB of your units changes after each purchase.
In 2001, you purchased 833.3333 units for $15,000. The ACB is therefore $18.00 ($15,000 ÷ 833.3333).
In 2001, you reinvested distributions of $1,170 by purchasing 59.8466 units at $19.55 per unit. The new ACB is calculated by dividing the total cost of the units ($15,000 + $1,170 = $16,170) by the total number of units you have purchased (833.3333 + 59.8466 = 893.1799). Therefore, the ACB is $18.10 ($16,170 ÷ 893.1799).
In 2002, you reinvested distributions of $1,455.30 by purchasing 70.5429 units at $20.63 per unit. The new ACB is $18.29 [($16,170 + $1,455.30) ÷ (893.1799 + $70.5429 = 963.7228)].
In 2008, you earned $7,316 by selling 400 units at $18.29 per unit. The ACB remains at $18.29 per share.
In 2024, you reinvested distributions of $721.65 by purchasing 36.2821 units at $19.89 per unit. The new ACB is $18.38 [($10,309.30 + $721.65 = $11,030.95) ÷ (563.7228 + 36.2821 = 600.0049)].
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Property for which you filed Form T664 or T664 (Senior)
Special rules also apply to determine the adjusted cost base (ACB) of a property for which you filed Form T664 or T664 (Seniors), Election to Report a Capital Gain on Property Owned at the End of February 22, 1994.
In most cases, if you filed Form T664 or T664 (Seniors), you are considered to have sold your capital property at the end of February 22, 1994, and to have immediately reacquired it on February 23, 1994. The ACB of your property on February 23, 1994, depends on the type of property for which you filed an election.
For example, if you filed an election for your interest in, or your shares of, a flow-through entity, in most cases the ACB of your interest or shares will not change. If you filed an election for capital property, other than a flow-through entity, your ACB is usually the amount you designated as proceeds of disposition on Form T664 or T664 (Seniors). If the property is a cottage, rental property, or other non-qualifying real property, your ACB is your designated proceeds of disposition, minus the reduction for non-qualifying real property.
Also, if your designated proceeds of disposition were more than the fair market value of the property at the end of February 22, 1994, your ACB on February 23, 1994, may be reduced. In this case, complete one of the following charts to determine your ACB on February 23, 1994 depending on your situation:
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Chart 2 – Calculating the revised adjusted cost base (ACB) of a flow-through entity
Note
The CRA offers a printer-friendly version of this chart that is identical to the one in the printed Capital Gains guide.
Complete this chart to calculate the ACB of your shares of, or interest in, the flow-through entity only if the proceeds of disposition you designated on Form T664 for the property were more than its fair market value (FMV) at the end of February 22, 1994. If the flow-through entity is a trust (other than a mutual fund trust), do not complete this chart as you do not have to reduce the ACB of your interest.
Adjusted cost base (ACB) calculation for flow-through entity
Step 1 – Reduction of the ACB
Designated proceeds of disposition (column 2 of Chart A of Form T664)
Blank space to input proceeds of disposition
Blank space to input amount
Line 1FMV at the end of February 22, 1994 (Step 1 of Form T664)
Blank space to input amount
Chart A
× multiply by 1.1 = Equals
− Minus
Line 2Line 1 minus line 2 (if negative, enter "0")
= Equals
Line 3
If the amount on line 3 is "0", do not complete the rest of this chart.
Amount A above
Blank space to input Amont A
Blank space to input Amount A above
Blank space to input amount
Line 4
ACB at the end of February 22, 1994 (column 1 of Chart A of Form T664)
− Minus
Line 5Line 2 minus line 5
= Equals
Line 6If you entered an amount in column 4 of Chart A of Form T664, complete lines 7 to 11 and continue at line 12.
Otherwise, enter the amount from line 6 on line 8.
Amount from column 4 of Chart A of Form T664
Blank space to input amount
Line 7
Amount from column 3 of Chart A of Form T664
÷ Divided by
Line 8
Line 7 divided by line 8
= Equals
Line 9
Amount from line 6
× Multiply by
Line 10
Line 9 multiplied by line 10
= Equals
− Minus
Line 11
Line 6 minus line 11
= Equals
− Minus
Line 12
Reduction: Line 3 minus line 12
= Equals
Line 13
If the amount on line 13 is negative, do not complete Step 2.
Step 2 – Revised ACB
ACB at the end of February 22, 1994 from line 5
Blank space to input amount
Line 14
Reduction from line 13
− Minus
Line 15
Revised ACB on February 23, 1994:
Line 14 minus line 15 (if negative, enter “0”)= Equals
Line 16
Use the amount from line 16 to calculate the capital gain or loss when you sell your shares of, or interest in, the flow-through entity.
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Chart 3 – Calculating the revised adjusted cost base (ACB) of capital property (other than a flow-through entity)
Note
The CRA offers a printer-friendly version of this chart that is identical to the one in the printed Capital Gains guide.
Complete this chart to calculate the ACB of the property only if the proceeds of disposition you designated on Form T664 or T664 (Seniors) for the property that were more than its fair market value (FMV) at the end of February 22, 1994.
Adjusted cost base (ACB) calculation for capital property
FMV of the property at the end of February 22, 1994 from Step 1 of Form T664 or T664 (Seniors)
Blank space to input proceeds of disposition
Blank space to input amount
Line 1Designated proceeds of disposition:
Column 2 of Chart B of Form T664, or column 2 in Step 2 of Form T664 (Seniors)Blank space to input amount
Line 2Amount from line 1
Blank space to input amount
× multiply by 1.1 = Equals
− Minus
Line 3
Line 2 minus line 3 (if negative, enter "0")
= Equals
− Minus
Line 4
Line 1 minus line 4 (if negative, enter "0")
= Equals
Line 5
If the property is non-qualifying real property, enter the amount from column 4 of Chart B of Form T664, or from column 4 in Step 2 of Form T664 (Seniors). Otherwise, enter "0".
− Minus
Line 6
Revised ACB on February 23, 1994:
Line 5 minus line 6 (if negative, enter "0")= Equals
Line 7
Use the amount from line 7 to calculate the capital gain or loss when you sell the capital property.
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Property you inherit as a gift
If you receive property as a gift, you are generally considered to have acquired the property at its fair market value (FMV) on the date you received it. Similarly, if you win property in a lottery, you are considered to have acquired this prize at its FMV at the time you won it.
Generally, when you inherit property, the property's cost to you is equal to the deemed proceeds of disposition for the deceased person. Usually, this amount is the FMV of the property right before the person's death. However, there are exceptions to this rule. For example, property that you inherit because your spouse or common law partner died, or farm property or a woodlot transferred on death to a child, may be treated differently. For more information, see Taxable capital gains on property, investments, and belongings.
Selling a building
If you sold a building of a prescribed class, special rules may make the selling price an amount other than the actual selling price. This happens when you meet both of the following conditions:
- You, or a person with whom you do not deal at arm's length, own the land on which the building is located, or the land adjoining the building if you need the land to use the building
- You sold the building for less than its cost amount and its capital cost
Calculate the building cost amount as follows:
- If the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before the sale
- If more than one property is in the same class, you have to calculate the cost amount of each building as follows:
- Capital cost of the building
- divide Capital cost of all properties in the class that have not been previously disposed of
- times UCC of the class
- equals Cost amount of the building
Note
You may have to recalculate the capital cost of a property to determine its cost amount in any of the following situations:
- You acquired a property directly or indirectly from a person or partnership with whom you did not deal at arm's length
- You acquired the property for some other purpose and later began to use it, or increased its use, to earn rental or business income
For more information, call 1-800-959-8281.
If you sold a building under these conditions, this may restrict the terminal loss on the building and reduce the capital gain on the land. For more information, see Guide T4036, Rental Income, or Income Tax Folio S3-F4-C1, General Discussion of Capital Cost Allowance.
Selling part of a property
When you sell only part of a property, you have to divide the adjusted cost base (ACB) of the property between the part you sell and the part you keep.
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Example
You own 100 hectares of vacant land of equal quality. You decide to sell 25 hectares of this land. Since 25 is one quarter of 100, you calculate one quarter of the total ACB as follows:
ACB total $ 100,000
Minus
The ACB of the part you sold ($100,000 x 1/4) – 25,000
The ACB of the part you kept = $ 75,000
Therefore, the ACB for the 25 hectares you sold is $25,000.
For more information on selling part of a property, see Archived Interpretation Bulletin IT-264R, Part Dispositions, and its Special Release.
Other transactions
Details regarding less common transactions can be found below:
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Disposing of property included in capital cost allowance Class 14.1
If you disposed of property included in capital cost allowance (CCA) Class 14.1 (eligible capital property before January 1, 2017) that is qualified farm or fishing property, you may be able to claim the capital gains deduction.
For details on how to report the disposition of this type of property and what amounts are eligible for the capital gains deduction, see the chapter called "Capital gains" in the following guides:
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Capital gains or losses from a partnership
A partnership does not pay tax on its capital gains or losses, and does not report them on an income tax and benefit return. Instead, members of the partnership report their share of the partnership's capital gains or losses on their own return.
Certain partnerships may have to file a partnership information return (T5013 SUM, Summary of Partnership Income, and T5013-FIN, Partnership Financial Return) and send copies of the slip T5013, Statement of Partnership Income, to report amounts flowed out to their members.
How to report
If you receive a T5013 slip, see Chart 1 to find out how to report your share of the capital gain or loss from the partnership.
However, if you are a member of a partnership that does not have to file a partnership information return for 2024, you have to report your share of any capital gain or loss from each disposition of capital property shown on the partnership financial statements in the appropriate area of Schedule 3.
For example, if the capital gain is from disposing of depreciable property, report the gain in the Real estate, depreciable property, and other properties section.
If the partnership disposed of property included in CCA Class 14.1 that is qualified farm or fishing property, part of the business income from the transaction may be a taxable capital gain. This amount qualifies for the capital gains deduction.
For more information on the calculation and how to report this amount, see the chapter called "Capital gains" in the following guides:
Disposition of an interest in a partnership to a non-resident or tax-exempt entity
In general, if you dispose of an interest in a partnership to tax-exempt entities, non-resident persons, or partnerships and trusts that have such members or beneficiaries, a special rule may apply.
Part of the capital gain may be taxable at 50% and another part at 100%. The portion of the capital gain from the disposition that can reasonably be attributed to increases in the value of capital property (other than depreciable property) held directly by the partnership (or held indirectly by the partnership through one or more other partnerships) is taxable at the 50% inclusion rate and the rest is taxable at 100%.
If all the partnership assets are inventory, depreciable property, or resource property, then the capital gain would be taxable at 100% unless an exception applies. If there is also capital property (other than depreciable property), then the gain must be apportioned.
For electronic filers, if you are reporting an amount at 100%, include the full amount at supporting line 50410. For paper filers, if you are reporting an amount at 100%, include the full amount on line 19900 of Schedule 3 and indicate 100% beside lines 19900 and 12700 of the income tax and benefit return.
Capital gains reduction (flow-through entity)
A partnership is considered a flow-through entity. You cannot claim the capital gains reduction for dispositions of these shares. The last year that you could claim the capital gains reduction in was tax year 2004. To find out the special rules for 2005 and later tax years, and more information on flow-through entities, see Flow-through entities.
Capital gains deduction
You may be eligible for the capital gains deduction for any of the following partnership-related amounts:
- a capital gain from disposing of qualified small business corporation shares
- a capital gain from disposing of qualified farm or fishing property
- farming or fishing income from the disposition of property included in capital cost allowance (CCA) Class 14.1 that is qualified farm or fishing property
For more information, see line 25400.
Capital gains deduction for qualifying business transfer
You may be eligible for the capital gains deduction for a partnership-related capital gain from the disposition of a share of a Canadian-controlled private corporation that is a qualifying business transfer . For more information, see Capital gains deduction for qualifying business transfer.
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Purchase of replacement property
When you sell a business property or when a property you own is expropriated, destroyed, or stolen, you may be able to elect to postpone or defer reporting the capital gain, recapture of capital cost allowance, or business income from disposing of property.
Provided you meet certain conditions, you may want to do this when you use the proceeds of disposition of the property to purchase a replacement property. The election may defer the tax consequences on the above amounts until you sell the replacement property.
For more information, see Income Tax Folio S3-F3-C1, Replacement Property.