Personal Finance

How/Should I enter superficial loss dispositions on Schedule 3

  • Last Updated:
  • Feb 26th, 2021 5:54 pm
[OP]
Jr. Member
Mar 12, 2006
182 posts
142 upvotes

How/Should I enter superficial loss dispositions on Schedule 3

I have few transaction that I think will be considered superficial loss by CRA as I was switching between CGL.C and MNT based on the premium/discount of MNT.
Both funds track Gold in Canadian dollars and should be considered identical for tax purposes. Please, correct me if I am wrong.

Should I enter these superficial loss transactions in Schedule 3 of the tax return?
I am supposed to report all dispositions resulting in loss/gain on Schedule 3, but the form doesn’t seem well designed to accommodate superficial losses, so I'm not sure how to report transactions involving superficial loss.

I can't decide between these 2 options, which both make sense to me and CRA is not very clear of the requirements:

- Don't record the superficial loss in Schedule 3 and adjust (increase) the ACB of the substituted property with the loss amount
- Record the superficial loss transactions in Schedule 3, but adjust the ACB such that it equals the proceeds of disposition less the commission resulting in zero loss/gain. Still adjust (increase) the ACB of the substituted property with the loss amount

I'd really appreciate if someone can shed some light on this situation.
6 replies
[OP]
Jr. Member
Mar 12, 2006
182 posts
142 upvotes
So, no one has any ideas?

As a bonus, here is how I recorded the Superficial loss in Quicken to correct the ACB of the replacement shares:

- One day before the superficial loss sale, record a fictitious Return of Capital matching the superficial loss amount.
This will decrease the adjusted cost base of the sold property by this amount and ensure the sale transaction results in no gain/loss.
- One day before the buy of the same or identical property, record a fictitious negative Return of Capital matching the superficial loss amount.
This will restore the proper cash balance and increase the adjusted cost base of the substituted property resulting in either decrease of your capital gain or increase of your capital loss when you sell the substituted property.

Note: When different accounts were used for the sale/buy orders, then record the Return of Capital transactions in the account where the sale/buy orders were executed, but use RtrnCap and RtrnCapX to adjust the cash balance of both accounts.

Now I have to figure out how to make TDDI adjust the ACB in their system. Apparently there is a book adjustment form TD 800092 I need to complete and fax or e-mail.
Member
May 24, 2018
461 posts
291 upvotes
Ontario
vdimitrov wrote: ... switching between CGL.C and MNT ...
Both funds track Gold in Canadian dollars and should be considered identical for tax purposes. Please, correct me if I am wrong.
Are you sure about that? One common commodity but two different trading symbols, two different companies.

... you may get more expertise from the area in the investing sub-forum
Deal Guru
User avatar
Sep 1, 2005
12554 posts
7294 upvotes
Markham
Try this

https://turbotax.community.intuit.ca/co ... /00/940409

The loss is superficial so as long as you record it as a net ZERO, you should be OK...CRA is ultimately looking to see a transaction with a sale and proceeds equal to the T5008 amount.
I would record the transaction ie sale on the Schedule with the Proceeds equal to the cost ie ZERO gain/loss.
We're all bozos on the bus until we find a way to express ourselves...

Failure is always an option...just not the preferred one!
Member
May 12, 2003
371 posts
238 upvotes
GTA
IMO, that is NOT a superficial loss.

They are two different trading symbols!

Superficial loss is meant for buying the exact same investment that you had before, which in this case is not
[OP]
Jr. Member
Mar 12, 2006
182 posts
142 upvotes
ssj4_ootaku1 wrote: IMO, that is NOT a superficial loss.

They are two different trading symbols!

Superficial loss is meant for buying the exact same investment that you had before, which in this case is not
You can avoid superficial loss only if the replacement ETF tracking similar asset classes is based on different underlying index. With different ETFs tracking the same index, capital loss selling would not be allowed.
For example, it will be allowed to replace VCN which tracks the FTSE Canada All Cap Domestic Index with XIC, which tracks S&P/TSX Capped Composite Index.

I am not sure about the pair CGL.C and MNT. They are not tracking an index, but the price of gold in Canadian dollars. They are quite different the way they are structured (ETF vs ETR) and have different features (MNT allows the exchange for physical gold, etc).
I have read the CRA's interpretation bulletin for identical properties and even though MNT and CGL.C have different properties, fees and structures, it does not seem like capital loss selling will be allowed in this case as they really do track the same thing.
In CRA's bulletin "Gold bullion and gold certificates are identical properties".

I can try to claim the loss and see if it will be allowed by CRA, but based on my understanding it is superficial and will not be allowed.
Newbie
Apr 13, 2019
59 posts
80 upvotes
vdimitrov wrote: I have read the CRA's interpretation bulletin for identical properties and even though MNT and CGL.C have different properties, fees and structures, it does not seem like capital loss selling will be allowed in this case as they really do track the same thing.
In CRA's bulletin "Gold bullion and gold certificates are identical properties".
Hi Vdimitrov,
I agree with your conclusion about MNT/CGL.c. But I'm wondering if you eventually found a definitive answer to your superficial loss question.
Thanks.

Top