Declaring a gain or loss for tax purposes

In brief

For tax purposes, redeeming shares implies disposition of the shares. Accordingly, redeeming shares may give rise to a capital gain or loss. In short, a capital gain is taxable under normal 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 buying the shares.

These rules apply for both federal income tax (see line 12700 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 you obtain when you redeem shares differs from the adjusted cost base (tax cost) of the shares, and both a gain or loss are taken into consideration for federal and Québec income tax purposes. 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 purposes of determining a capital gain, the tax credit you obtained for buying the shares does not reduce the adjusted cost base (tax cost) of the shares you acquired. The current capital gain inclusion rate is 50%[i].

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 applicable. The adjusted capital loss, as 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%[i].

Sample calculations of capital gain or loss for tax purposes

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 Revenu 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.

Tax slip

Investors who have redeemed shares will receive a T5008/RL-18 slip for the appropriate tax year to file their securities transaction.

Note that this information is only a summary of the main considerations 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.

^[i]The 2024 Federal Budget proposes to increase the capital gains inclusion rate for capital gains realized on and after June 25, 2024, from 50% to 66.67% for corporations and trusts and from 50% to 66.67% on the portion of capital gains realized in the year that exceed $250,000 for individuals.