Amy's Capital Gains

CALCULATING AMY’S CAPITAL GAINS

Warning: Tax terminology ahead

In 2018, Amy made a $2,500 investment into shares of a public company. Today, the total market value of that investment is $5,000.

• For accounting purposes, the “book value” (what she paid for the investment) is $2,500.

• If she sells the shares, the capital gain is the difference between the market value and the book value. In this case, $5,000 - $2,500 = $2,500. She will need to declare this on her annual tax return.

• In Canada, capital gains are afforded preferential treatment (they are taxed at 50 per cent), so Amy would add $2,500 x 50 per cent or $1,250 to her taxable income.

• Since she lives in B.C. with an annual income of approximately $150,000/year, her marginal tax rate is approximately 40.7 per cent.

• This means that selling the shares will generate $1,250 x 40.7 per cent or $508.75 in additional taxes owing if she sells the investment — even if she sells the investment with the intention of making a donation.