Question of the week: What are Capital gains and capital losses?

Defining Capital Gains and Capital Losses is quite simple.

A Capital Gain is the profit you earn on the sale of an asset, such as a stock or bond. The sale of an asset results in a capital gain if the price at which you sell the asset is higher than the price you paid for it. For example, let’s say you purchase 100 shares of a stock at the price of $5 per share. Your cost is $500. Three months later the price of the stock has risen to $7 per share. You sell your 100 shares for $700. In this transaction you have a capital gain of $200.

A Capital Loss occurs when the price you sell an asset for is lower than the price you paid for it. Let’s return to our example where you have purchased 100 shares of a stock at the price of $5 per share. This time the price of the stock has fallen to $3 per share. If you sell your 100 shares at this price you would only receive $300. This would be a capital loss of $200.

Capital gains and losses are important to your income taxes. Any capital gains you have need to be declared as income. However, your entire capital gain is not taxed at your marginal rate. Only 50 per cent of your capital gains is taxed at your marginal rate, so in our example only $100 of your $200 capital gain would be taxed.

You can also use any capital losses you had to claim against your capital gains, to reduce them. If you have any capital gains or losses be sure you correctly report them on your income taxes and if you have any questions be sure to ask an accountant or CRA.