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Tax considerations of redeeming shares

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Declaring a gain or loss for tax purposes…

In brief
For tax purposes, share redemption implies disposition of the shares. Accordingly, redeeming shares may produce a capital gain or loss. In short, a capital gain is taxable according to the usual tax rules, while a loss for tax purposes must be reduced by any tax credit already obtained. You do not have to repay the tax credit you obtained for your purchase.

These rules apply for both federal income tax (see line 127 of the Income Tax and Benefit Return and Schedule 3) and Québec income tax purposes (see line 139 of the Income Tax Return and Schedule G).

In detail
You may realize a capital gain or loss if the price when you request a redemption is different from the adjusted cost base (tax cost), and both are taxable for federal and Québec income tax purposes. The adjusted cost base (tax cost) is the average cost of all the shares you have bought and still hold at the time of the disposition.

Capital gain for tax purposes is the difference between the price you receive on redemption (disposition proceeds) and the adjusted cost base (tax cost) of the shares redeemed or purchased by agreement. For the purpose of determining a capital gain, the tax credit you obtained for purchasing the securities does not reduce the adjusted cost base (tax cost) of the shares you acquired. The current capital gain inclusion rate is 50%.

Capital loss for tax purposes is the difference between the price you receive on redemption (disposition proceeds) and the adjusted cost base (tax cost) of the shares redeemed or purchased by agreement. This loss will be reduced by the amount by which the tax credit you obtained for the shares you acquired exceeds the amount of special tax paid at redemption or purchase by agreement, as the case may be. The adjusted capital loss, if applicable, is deemed an allowable capital loss against any capital gain in the current year, and if a balance remains, against any capital gain during the three previous taxation years and/or future taxation years. The current allowable capital loss rate is 50%.

Special tax

If shares are redeemed before the end of the mandatory seven-year holding period, the tax credit in respect of acquisition of a share is recovered by the Ministère du Revenu du Québec through a special tax, prorated to the holding period. Where applicable, the special tax is withheld by CRCD from the amount payable on share redemption.

Sample calculations of capital gain or loss for tax purposes (PDF, 154 kb)

Note that this information is only a summary of the main consequences for shareholders. Accordingly, this information is not a tax opinion. You should consult a tax professional to determine the tax consequences applicable to your personal situation or for any additional information.

Tax slip

These explanations appear on shareholder statements of account for the redemption year, for information purposes only. Investors who have redeemed shares will receive a T5008/RL-18 slip for the appropriate tax year to file their securities transaction.