A client sold a portfolio of stocks and realized a capital gain of $10,000 and a capital loss of $4,000. Under the Canadian capital gains tax system, what is the net taxable amount from these transactions?
The capital loss is first applied against the capital gain to determine the client’s net capital gain:
Capital gain: $10,000
Less capital loss: $4,000
Net capital gain: $6,000
The applicable one-half inclusion rate is then applied:
$6,000 × 50% = $3,000
The net taxable capital gain is therefore $3,000 , making option D correct.
Option B represents the net economic capital gain before application of the inclusion rate. Option A would result from applying the 50% rate to the $10,000 gain while incorrectly ignoring the capital loss. Option C treats the entire gross gain as taxable and disregards both the loss and the inclusion-rate calculation.
Capital gains and capital losses must be netted before the taxable portion is determined. The taxable capital gain is the amount included in the client’s taxable income; it is not necessarily the amount of tax payable. The actual tax liability depends on the taxpayer’s marginal rate and other circumstances.
CIRO’s Retail Securities syllabus requires candidates to calculate capital gains and losses and apply their tax treatment. Current official federal material also confirms the one-half inclusion treatment used in this calculation.
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