How do you calculate and report a reserve?
If you claim a reserve, you still calculate your capital gain for the year as the proceeds of disposition minus the adjusted cost base and the outlays and expenses incurred to sell the property. From this, you deduct the amount of your reserve for the year. What you end up with is the part of the capital gain that you have to report in the year of disposition.
To deduct a reserve in any year, you have to complete Form T2017, Summary of Reserves on Dispositions of Capital Property. The information on the last page of Form T2017 explains how to calculate the maximum amount you can deduct as a reserve for a given year and the number of years for which you can claim the reserve.
Generally, the maximum period over which most reserves can be claimed is four years. However, a nine year reserve period is provided for transfers to your child of family farm or fishing property (which includes shares of a family farm or fishing corporation, an interest in a family farm or fishing partnership, as well as land or depreciable property in Canada that you, your spouse or common-law partner, your parent or any of your children used in a farming or fishing business), and small business corporation shares, as well as gifts of non-qualifying securities made to a qualified donee.
Your children include any of the following:
- a person of whom you or your spouse or common-law partner is the legal parent
- your grandchild or great-grandchild
- your child’s spouse or common-law partner
- another person who is wholly dependent on you for support and who is, or was immediately before the age of 19, in your custody and under your control
If you claimed a reserve in the previous year, include that reserve in the calculation of your capital gains for the current year. For more information, see Capital gains deduction.
If you claimed a reserve in 2021, you have to include it in your capital gains calculation for 2022. Claim the new reserve that you have calculated for 2022 in the appropriate area on Form T2017. If you still have an amount that is payable to you after 2022, you may be able to calculate and claim a new reserve. However, you will have to include it in your capital gains calculation for 2023.
A capital gain from a reserve brought into income qualifies for the capital gains deduction only if the original capital gain was from a property eligible for the deduction. For a list of these properties, see Which capital gains are eligible for the capital gains deduction?.
You do not have to claim the maximum reserve in a tax year (Year A). However, the amount you claim in a later year (Year B) cannot be more than the amount you claimed for that property in the previous year (Year A).
Completing your Form T2017 and Schedule 3
Enter the amount from line 67060 of Form T2017 on line 19200 of Schedule 3.
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