Jeff

So in order to show it as a capital loss in my tax return…do I actually need to sell the stock, and re-buy it ? Or its an assumption which leads to the point that whatever u spent on purchasing the stock is ur actual loss ?

Also, if I do need to actually sell the stocks, then how do I do that ?

And if I dont need to sell the stocks, but put the details on Schedule 3, then do I need a tax receipt or something of that sort as proof, or just a share certificate is enough ?

If I am filing taxes online, then do I need to send some documents to CRA regarding this – OR its pretty sure that my return is going to be audited and that I will have to provide the documents then (dont care if its audited..just for info)..

Finally, as per conflicting posts above, that Nortel might / might not be counted under section 50…today, is it considered under that section or not…ie. can i claim a loss or not ?

Thanks a lot.

You also need to advise your broker or brokerage firm that you wish to trigger the capital loss of your defunct stock and repurchase it.There is also a fee to do this.

Boomtrader

It is not bankrupt, it is under CCAA creditor protection and undergoing restructuring. It is not technically bankrupt.

It is not being wound up under Sec 6 of the winding up act.

And with respect to the 4 bullets above, if you read the ITA Sec. 50(1)(iii) it says:

(iii) at the end of the year,
(A) the corporation is insolvent,
(B) neither the corporation nor a corporation controlled by it carries on business,
(C) the fair market value of the share is nil, and
(D) it is reasonable to expect that the corporation will be dissolved or wound up and will not commence to carry on business

Note the key word in (C). AND (not OR as TaxGuy posted). You have to meet ALL 4 conditions. Not just one of them. At this point it probably only meets (A).

Fill out schedule 3 in the appropriate spaces. In your example, you should report a capital loss of $500 of which $250 is an allowable capital loss. You attach a signed letter indicating you are making an election on Nortel.

If you look at the 2008 form, you fill in section 3. Column 2 is $0, Column 3 is $500 and column 5 is ($500). If you have nothing else to report on this form you report ($500) on line 197 and $250 on line 199.

For example, let’s say I have 100 Nortel shares (which I bought it for, let’s say $5/share back then) and I elect to sell them @ $0 and re-purchase them @ $0. How do I fill out the Schedule 3 form? I’m a little confused.

Thanks!

@ ING – You’re a little late. Laidlaw went bankrupt in the 1990’s.

@noob – An acquisition involving two non-Canadian companies can be tricky. The Canadian Tax Act has a whole host of provisions about amalgamations and normally tax deferred rollovers apply to Canadian companies only and is not always automatic. If you can’t figure out the consequences of an amalgamation of two companies, treat as a sale of one and purchase of he other.

You’d be wise to pay attention to the information circulars coming from Encana to ensure you are aware of the tax implications. Chances are it will be a tax deferred rollover, but be viligent!

@ Jerry Hung – The commission paid on the disposition is deducted from your proceeds of the sale and decreases your capital gain or allowable capital loss. If the company was legally bankrupt you are in a position to claim a deemed sale at nil and realize a loss.

e.g. I sold my Lehmans Brothers (LEH) stock in TDW (via the phone) which wanted $43 commission, after some easy bargaining they did it for $9.99

Add that to the capital loss for 2009

This happened with Sirf in the US which got bought out buy a Brit company called CSR. Now all the old SiRF shareholders had their shares exchanged for CSR stock and some cash. I wonder if this kind of transaction can trigger a deemed disposition.

We also have a similar situation with the upcoming Encana Split. Can a split be a deemed disposition?

FT, do you reckon we can get the Tax guy to help out with this question as well?