Principal Issues: Income tax treatment of gains arising on disposition of shares.
Position: None taken.
Reasons: General comments only.
From: Fitzgerald, Tim
Sent: June 2, 2009
To: XXXXXXXXXX
Subject: Question regarding stock trades Ref# [ITRD 2009-031831]
Dear XXXXXXXXXX ,
This is in response to your e-mail of March 26, 2009 to the Department of Finance which was forwarded to the Canada Revenue Agency ("CRA") for reply. Further to my previous e-mail of May 20, 2009, I am providing some general comments along with links to our CRA website that I trust will be helpful to you.
Briefly, you wanted to know what would be the proper tax treatment of a gain on disposition of US shares by a taxpayer resident in Canada.
Generally, under the Income Tax Act a gain or loss from a disposition of shares will be taxed either as an income gain or loss or as a capital gain or loss. To determine whether the gain or loss is in the nature of income or capital, factors to consider include the taxpayer's course of conduct and intention in respect of the acquisition and disposition of the property. For example, shares held by a trader or dealer in securities would generally be treated as inventory such that any gain or loss arising from the disposition of the shares would be reflected 100% in the taxpayer's computation of income for tax purposes. On the other hand, shares held by a taxpayer as an investment would generally be treated as capital property such that upon disposition, only 50% of any resulting gain or loss would be reflected in the taxpayer's computation of income for tax purposes.
The general comments above also apply to a disposition of US shares by a Canadian resident taxpayer, except that the relevant amounts are reported in Canadian dollars.
More information regarding how to report income transactions can be found in the CRA's Guide T4002- Business and Professional Income at http://www.cra-arc.gc.ca/E/pub/tg/t4002/README.html
More information regarding the nature of gains and losses for tax purposes can be found in the CRA's Guide T4037 Capital Gains at http://www.cra-arc.gc.ca/E/pub/tg/t4037/README.html
Please contact me if you would like further assistance regarding this matter.
Tim Fitzgerald, CGA
Business and Partnerships Division
Income Tax Rulings Directorate
Tel. (613) 957-8967