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Question about capital gains reporting
April 7, 2023
6:48 pm
Doug
British Columbia, Canada
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A couple questions regarding reporting of capital gains.

In the past, my understanding, from my dad, was that brokerage commissions in non-registered accounts were included within the carrying charges deduction, but that does not seem to be the case. I wondered about that because when calculating one's adjusted cost base, one deducts the brokerage commissions by adding the commissions paid to one's cost base, which reduces one's overall capital gain (or increases one's capital loss, as the case may be). It wouldn't make sense to be able to 'double dip'. While carrying charge deduction probably would have the bigger after tax bang for one's buck, c'est le vie and we will use whatever is correct. Just confirming my understanding.

Second question around reporting, which will be asked in two parts. One notionally has the option of using the T5008 slip to calculate one's capital gains or losses for a given security, or to using the Capital Gains and Losses worksheet and keeping an Excel spreadsheet or some other calculation that supports that. First part, from the perspective of the NETFILE return that the CRA sees, is the information reported in the same final numbered box regardless of the method used?

Second part to this question is as follows. In my case, the T5008 reports my cost base, before adjusting for brokerage commissions, as $3956.58 and my sale proceeds as $10424.23, for a gain of $6467.65. In AdjustedCaseBase.ca, I calculated my cost base as $3940.91, my proceeds as $10424.22 (likely a rounding difference with AdjustedCostBase.ca/Excel spreadsheet output), and a gain of $6483.31 (this is from the worksheet in Wealthsimple Tax, not the underlying forms, hasn't yet taken into account the two brokerage commissions, but you get the idea). The latter is obviously correct, but is the T5008 form preferred by the CRA in that they will make adjustments to my reported Capital Gains and Losses to match what was reported on the T5008, similar to what they would do with, say, a T5008? And secondarily, does reporting via Capital Gains and Losses instead of a reported T-slip (T5008) raise any sort of 'red flags' from the CRA's perspective?

Thanks!

Cheers,
Doug

April 7, 2023
7:28 pm
AltaRed
BC Interior
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I will partially address your questions.

1. Brokerage T5008s usually (BMO IL and Scotia iTrade) bury the purchase commission in cost base and you can enter it that way in Schedule 3 in tax software and put in 0 for acquisition cost.... or reduce the acquisition cost by the commission and insert the commission on the separate line. It makes no difference. Column (3) includes the purchase commission in any case so might as well use the ACB with the embedded purchase commission. OTOH, on dispositions, Schedule 3 wants you to insert gross proceeds (2) and list sell commission separately (4). Edit to add per Norman's post. Purchase commissions are not carrying costs. They are part of cost base.

2a. I use the brokerage T5008 as a check and balance against my personal entries to Schedule 3. If you look at the T1-KFS (Keying Field Summary) which is the key entry data of Netfile, it appears to not matter if you use the T5008 entries in tax software or manual Schedule 3 inputs. Both result in the same data being submitted.

2b. Back to 1. above, it makes no difference which method you use for purchase commission, either embedded per the T5008 or listed separately. The net gain/loss is exactly the same number. If you input your brokerage commission separately from your ACB in Schedule 3, your cost base will be $3956.58 anyway.... same as the brokerage T5008. What you really should be doing in adjustedcostbase.ca is to include your purchase commission to the acquisition cost in the first place and you wouldn't be asking this question.

CRA doesn't care which way you do it, i.e. T5008 or Schedule 3 inputs. It is my experience that CRA does not correct your Schedule 3 inputs to match the T5008 BUT they may question you if there is a material difference and ask you to justify your personal records. What I do is defer to the T5008 data if there are minor differences simply to avoid having to justify my own data at a later date.

That said, T5008 ACB data can (will) be terribly wrong with securities that have been journaled between USD and CAD accounts. The brokerage never uses the acquisition forex rate during journals. Use your own data. The brokerages take no responsibility for Cost Basis entries.

April 7, 2023
7:31 pm
Norman1
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Doug said

In the past, my understanding, from my dad, was that brokerage commissions in non-registered accounts were included within the carrying charges deduction, but that does not seem to be the case. I wondered about that because when calculating one's adjusted cost base, one deducts the brokerage commissions by adding the commissions paid to one's cost base, which reduces one's overall capital gain (or increases one's capital loss, as the case may be). It wouldn't make sense to be able to 'double dip'. While carrying charge deduction probably would have the bigger after tax bang for one's buck, c'est le vie and we will use whatever is correct. Just confirming my understanding.

That's not correct. Brokerage commissions are not carrying charges.

The commissions are either (1) acquisition costs or (2) selling outlays and expenses.

Acquisition costs are added to the adjusted cost base. Selling outlays and expenses are reported as such on Schedule 3.

There should be no mismatch between the proceeds of disposition reported on Schedule 3 and the proceeds of disposition on the T5008 slip from the broker.

If one's T5008 slips show $45,000 in total proceeds of disposition, then there better be at least $45,000 in total proceeds of disposition on one's Schedule 3!

It is not unusual for the cost base on T5008 slips to be incorrect. Broker will not know, for example, if taxpayer had chosen to realize, instead of defer, capital gains upon a past corporate action, like a share exchange. I've received T5008 slips with no cost/book value filled in.

April 7, 2023
7:34 pm
AltaRed
BC Interior
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Thank you for saying that. I meant to edit my prior post to say purchase commissions are NOT carrying costs.

April 7, 2023
8:36 pm
Norman1
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In T5008 … – slip information for individuals, CRA acknowledges the inaccuracy of the ACB on T5008 slips:

The amount in box 20 may or may not reflect your adjusted cost base (ACB) for the purpose of determining the gain or loss from the disposition of the security. You are required to make the adjustments, as needed, to the amount indicated in box 20, at the time of determining and reporting your gain or loss from the disposition.

April 8, 2023
5:16 am
savemoresaveoften
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Just to add, if u hold same security in with 2 different brokers, then the T5008 will not be correct either, for the obvious reason. Unless u have identical position at both brokers at exactly the same purchase price ! 🙂

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