You’ll need to use the federal Schedule 3 form to report any capital gain (or loss) you have from the disposition (sale or transfer) of a capital property – specifically, shares, bonds, debts, land, or buildings – and if you want to claim a capital gains reserve.
You can even have a capital gain or loss if you’re considered to have sold capital property. This can happen if you:
- Give property (other than cash) as a gift
- Settle a debt someone else owes you
- Transfer property to a trust
- Exchange properties
- Owned property that was destroyed or stolen
Regardless of whether the disposition of a capital property results in a gain or a loss, you have to file a tax return to report the transaction, even if you aren’t required to pay tax. This is also true if you’re claiming a capital gains reserve.
Note: If you’re a resident of Québec, you’ll also need to complete Schedule G. Fortunately, both the Schedule 3 and Schedule G are combined in H&R Block’s tax software.
Types of capital property
You can report the sale or transfer of the following types of capital property on the Schedule 3 and Schedule G page:
- Qualified small business corporation shares
- Qualified farm or fishing property
- Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares and other shares
- Real estate, depreciable property, and other properties
- Bonds, debentures, promissory notes, and other similar properties
- Other mortgage foreclosures and conditional sales repossessions
- Personal-use property
- Listed personal property (LPP)
- Resource property
What happens if I have a capital gain or a capital loss?
If you have a capital gain, you might be able to:
- defer part of the capital gain by claiming a reserve or
- offset all or a part of the gain by claiming a capital gains deduction
Generally speaking, if you had an allowable capital loss in a year, you have to apply it against your taxable capital gain for that year. If you still have a loss, it’s used to calculate your net capital loss, which you can to use reduce your taxable gain in any of the past 3 years or in any future year.
Where do I claim this?
- Under the PREPARE tab, click the IN THIS SECTION icon.
- Under Investments (shares, securities, property, tax shelters, etc.) you bought or sold in 2017, click the Add This button.
- Click the PENSION PLANS AND INVESTMENTS icon. You’ll find yourself here:
- Under the BOUGHT/SOLD SECURITIES OR OTHER PROPERTY heading, select the checkbox labelled Capital gains and losses (Schedule 3 & Schedule G), then click Continue.
- When you arrive at the Capital gains and losses page, enter your information into the tax software.
I need help completing this page
Before you begin completing this page, remember to enter all your slips (such as the T3, T5, T5008, T5013, T4PS, RL-1, RL-15, and RL-18) in your return first. To add a slip, go to the QUICK ENTRY tab and click the QUICK SLIP icon.
Enter the slip name (example, T3) in the search field and either click the highlighted selection or press Enter to continue.
Once you’ve entered your slips, H&R Block’s tax software will automatically transfer the relevant information and amounts to your Schedule 3 and G. If you want to add other information on this page, remember that your Schedule 3 and G (if applicable) will be customized depending on the type of capital property you sold or transferred. Some of the information you’ll need on hand to complete this page includes:
- Address or legal description of the property: The legal description of the property represents the location of the property based on a land survey such as a township survey, district lot, etc.
- Proceeds of disposition: This is the amount you received from the sale of your capital property.
- Adjusted cost base (ACB): This is the cost of a property plus any expenses you paid to acquire it (such as commissions and legal fees), plus any additions or upgrades made to property. Keep in mind, you cannot add current expenses, such as maintenance and repair costs, to the cost base of a property. However, if the repairs are made to the property because of you want to sell it or it was a condition of sale, the repairs are capital expenses and can be added to the ACB of the property.
- Expenses you paid to sell the property: These expenses include fixing-up expenses, finders' fees, commissions, brokers' fees, surveyors' fees, legal fees, transfer taxes, and advertising costs.
- Capital gains reserve amount: When you sell something, you typically receive payment in full at the time of the sale. When it comes to capital property, you might receive payment over the course of a few years.
For example, if you sold a capital property for $50,000, you might receive $10,000 at the time of the sale and the remaining $40,000 over the course of the next 4 years. If that’s the case, you might be able to report a portion of the capital gain in the year you receive payment.
- Capital gains from the sale of any eligible small business corporation shares that you want to defer: You might be able to defer capital gains on certain small business investments disposed in the year. This deferral applies to dispositions where you use the amount from the sale to acquire another small business investment. The adjusted cost base (ACB) of the new investment is reduced by the capital gain deferred from the initial investment.
The capital gains deferral applies only to eligible small business corporation shares. The eligible small business corporation shares have the following characteristics:
- These are common shares issued by the corporation to you, the investor
- They are issued by a corporation that’s an eligible small business corporation* at the time the shares were issued
- The total carrying value of the assets of the corporation and related corporations can’t be more than $50 million immediately before, and immediately after, the share was issued and
- While you hold the shares, the issuing corporation is an eligible active business corporation.
To be able to defer the capital gain, you must have held the eligible small business corporation shares for more than 185 days from the date you acquired them. The replacement shares must be acquired at any time in the year of the disposition or within 120 days after the end of that year.
*An eligible small business corporation is a Canadian-controlled private corporation, where all or substantially all of the fair market value of its assets is used mainly in an active business that is carried on in Canada by the corporation or an eligible small business corporation related to it.
Note: If the type of property that you sold or disposed of was your principal residence, you’ll also need to complete the Principal residence designation (T2091(IND)/Schedule 3) page in H&R Block’s tax software. Click here for more information on where you can find it.