In case you switch an funding right into a register account, it bears mentioning this deemed disposition is not going to set off a tax-deductible capital loss because of the superficial loss rules.
When a inventory goes bankrupt, Jake, you may declare a capital loss, although you may not be capable to promote the shares. In accordance with the Canada Revenue Agency (CRA):
Within the case of a share in a company… the taxpayer should personal the share on the finish of the tax yr and the company should:
- have grow to be bankrupt within the tax yr;
- be a company referred to in part 6 of the Winding-up and Restructuring Act that was bancrupt inside the that means of that Act and for which a winding-up order beneath that Act was made within the tax yr; or
- be bancrupt on the finish of the tax yr, and, at the moment, it should even be that neither the company, nor a company it controls, carries on enterprise. As well as, at the moment, the share will need to have a good market worth of nil and it should be cheap to count on that the company might be dissolved or wound-up and won’t begin to hold on enterprise.
So, a bankrupt firm ought to qualify, Jake. And to assert the loss, it’s essential file an election in writing by together with a letter along with your tax return within the yr of the declare that you’re making an election beneath Subsection 50(1) of the Revenue Tax Act.
Some brokerages will buy the inventory from you for a nominal quantity. And so they might cost an administration price, however this could additionally permit you to declare the loss and obtain an official tax slip (a T5008) that exhibits the disposition. It additionally means you wouldn’t have to have a look at the nugatory safety in your account for years to return.
You possibly can declare capital losses to reduce capital gains incurred in the identical yr. In case your losses exceed your good points in a tax yr, it’s also possible to carry losses again as much as three years to offset earlier capital good points. And web capital losses can be carried ahead indefinitely to make use of sooner or later in opposition to capital good points.
Allowable enterprise funding losses (ABILs)
In case you personal shares of a bankrupt firm that was a non-public firm, you could possibly declare an allowable enterprise funding loss (ABIL) as an alternative of a capital loss. The corporate should be a small enterprise company (SBC).
In accordance with the CRA:
This can be a Canadian-controlled non-public company during which all or most (90% or extra) of the truthful market worth of its property:
- are used primarily in an lively enterprise carried on primarily in Canada by the company or by a associated company
- are shares or money owed of related companies that have been small enterprise companies
- are a mixture of those two forms of property
If subsection 50(1) of the Revenue Tax Act applies—mainly, if the corporate is bankrupt or bancrupt on the finish of the yr—you may declare an ABIL on a small enterprise company, Jake.
