Nortel losses the gift that keeps on giving | General financial discussion | Discussion forum

hotmony said
The Nortel losses piggy bank came to the rescue a few times for an unwanted or unexpected capital gain   

This message is far too short to be comprehensible. There's concise and then there's too concise.

Do you mean for yourself personally in that you had capital losses from your Nortel stock holdings and you've got a few of them left that you'd carried forward, which are now offsetting, in whole or in part, the taxes payable from your unexpected RBC USD money market fund capital gains distribution?

Wait...I thought I read that capital loss carry forwards can't offset capital gains distributions from a T3? Norman, can you clarify? Maybe hotmony had some other capital gains he hadn't mentioned too...

Cheers,
Doug

hotmony said
I assume Nortel stock capital loss can be used for any capital gain used it before on real estate gain. A canadian is a canadian a gain is a gain right folks? MMF gain is from debt like a stock both securities  

Capital gains distributions are a bit different in that they are on your T3 - they relate to capital gains on the disposals of underlying fund assets, not assets you've disposed of, so you can't offset them with your carried forward Nortel capital losses. You can, however, use these capital gains distributions to adjust your cost base on the USD money market fund.

If you have other capital gains from a disposition, that's my understanding - you should be able to use your Nortel carried forward capital losses there. I'll have ~$3,000 in capital losses from my investment in Yellow Media Inc., which resulted from a recapitalization in which my 262 shares were converted to 1 share for every 250 shares with no fractional shares issued (plus a warrant that paid out in cash a few years ago - not sure how to adjust my cost base for that! ).

Cheers,
Doug

hotmony said
Need a second opinion on Nortel capital gain usage. Think it's at an accountants discretion.. used before on a brokerage managed stock separate fund acct

How do you adjust the cost base on a mmf it'll take it to a loss then for future use/offset  

That's right...assuming you paid $10.00 per unit when you bought the MMF and received $10.00 per unit when you sold it, you should still be able to adjust your cost base upward with that capital gains distribution, I would think, such that you now have a very small capital loss per unit. This, of course, assumes the monthly distributions were paid to you in cash and not reinvested.

AdjustedCostBase.ca provides a useful free tool that allows you to manage up to two non-registered accounts for free. There are also Excel spreadsheets that serve this purpose, too.

Cheers,
Doug

hotmony said

Doug said

Capital gains distributions are a bit different in that they are on your T3 - they relate to capital gains on the disposals of underlying fund assets, not assets you've disposed of, so you can't offset them with your carried forward Nortel capital losses. You can, however, use these capital gains distributions to adjust your cost base on the USD money market fund.
).
 

Need a second opinion on Nortel capital gain usage. Think it's at an accountants discretion.. used before on a brokerage managed stock separate fund acct
.../offset  

I don't understand what you mean about an accountant's discretion. I was drawn to this thread by the title. How is a capital loss "a gift that keeps on giving"? Once you use the capital loss to offset capital gains, how does it keep on giving? Just because it has taken 20 years to use the entire capital loss, you still use the $ amount only once.

Capital losses from selling stocks are applied against capital gains distributed from a trust or corporation within the same year. Same across different years.

Capital losses on listed personal property (LPP) maintain their identity across tax years for offsetting.

Otherwise, the capital gains and capital losses from various sources are reported in different parts of Schedule 3 and are added together. 50% of the total ends up being the taxable capital gain or net capital loss for the tax year.

Taxable capital gain is recorded on Line 127. Net capital loss (including losses from stock dispositions) can be carried forward or carried back to previous years.

Line 127 (includes capital gains from T3 and T5 slips) determines how much net capital losses from previous years (that include losses from stock dispositions) can be claimed in Line 253.

I didn't think you could, as that's what I either assumed or had read elsewhere.

To be clear, though, they (capital gains distributions) are reported on a T3. And, you have to report both the capital gains distributions from a T3 annually and the capital gains when you sell the shares. There's two different types of capital gains to report. The capital gains distributions do adjust your cost base for the purposes of the capital gains at disposition, correct?

Cheers,
Doug

Doug said

…The capital gains distributions do adjust your cost base for the purposes of the capital gains at disposition, correct?

It is the return of capital distributions that reduce the cost base.

Capital gains distributions don't affect cost base unless they are reinvested. In such cases, it is the reinvestment that increases the cost base just like an additional purchase.

AltaRed said
Norman, there are 'phantom' re-invested distributions that don't change share count, but do increase ACB. These are capital gains internal to the ETF and are not paid out in cash but I believe these are the ones on the T3 that are taxed none the less.

These are not the same as the distributions received each month, quarter, or whatever.
…

The ETF phantom capital gain distributions are the same as other reinvested distributions.

Share or unit count does increase but the ETF does a reverse split immediately afterwards. This is from BlackRock Canada: Distributions & Tax:

Q. What is the difference between cash distribution and reinvested distribution?

A. iShares ETFs may pay distributions received to unitholders in cash or may reinvest such distribution amount in the fund. Generally, net income (such as interest income, dividends, foreign income) received by the iShares ETFs are distributed to unitholders in cash and net realized capital gains are reinvested in the ETF.

Similar to mutual funds, reinvested distributions are reinvested on the unitholder's behalf in additional units of the fund. With iShares ETFs, immediately following a reinvested distribution, the number of units outstanding is consolidated so that the number of units held by investors is the same as before the capital gains distribution. As a result, unitholders of iShares ETFs will not see an increase in the number of units held, and will NOT see a change in the net asset value per unit. …

Yes, the key here is to distinguish between reinvested vs paid-out distributions.

Nothing you can do about "phantom" (i.e. undistributed) gains, but this issue is the reason I always (when I have the option) choose a cash payout instead of reinvestment of any (non-phantom) distributions, i.e. I make sure to have distributions actually paid out to me instead of reinvested. A lot easier, no need to adjust and keep detailed records of ACB adjustments, no chance of inadvertently paying tax twice, i.e. once per T slip and then again years later (and when my financial affairs might be being handled by who knows who!) when dispose of the investment and original cost is incorrectly used to calculate capital gain on sale.

I sometimes wonder what the windfall to the Treasury is due to folks selling their non-registered mutual funds not realizing to adjust original cost for any already-taxed reinvested distributions, but maybe it's limited because not many people hold these types of investments outside registered accounts. Does anyone know if broker monthly or annual statements will adjust your cost base for any reinvested distributions that you've already received T slips for? I've never bothered to look into it.