Last week's column about claiming a capital loss on delisted shares prompted several questions from readers. Today we'll answer several of them.
We have 3,000 common shares of Pan Am Airways that were purchased at $30 (U.S.) a share, but the shares are now worthless. Can we claim a capital loss on these shares?
No. Pan American World Airways went bankrupt and ceased operations in 1991. Although the name has been resurrected several times since then, these businesses were not connected to the original airline.
We're now well beyond the maximum 10-year window that the Canada Revenue Agency (CRA) usually permits for an individual to reopen a tax return and claim a capital loss, said Brian Quinlan, partner with Campbell Lawless Professional Corp. chartered accountants.
"Your return is really closed after 10 years," he said.
I never claimed a loss for my 800 Nortel shares – definitely my worst investment! Is it too late?
No, it's not too late. Nortel announced in 2009 that it would cease operations and sell off its assets, so you can retroactively amend your 2009 tax return to claim the loss, Mr. Quinlan said.
The capital loss would first be applied against any capital gains in 2009. If you have unused capital losses left over, you can carry them back three years or forward indefinitely to reduce capital gains in other years.
Can I claim a capital loss for shares held in an RRSP or TFSA?
No. You can only claim a capital loss for shares held in a non-registered account.
If I have some worthless shares, can I transfer them to an RRSP or TFSA and trigger a deemed sale and capital loss, while keeping any potential upside in the shares in a tax-sheltered vehicle?
No. If you transfer shares to a registered account, the CRA will deny the loss.
"You're really selling to yourself," Mr. Quinlan explained. To claim a loss, you would have to dispose of the shares or make an election under Section 50(1) of the Income Tax Act, as discussed in last week's column.
Bear in mind, however, that if you transfer shares that have appreciated in value to a registered account, you will still have to declare a capital gain. It may not sound fair, but those are the rules.
Can an investor sell a capital loss to another party?
"No," Mr. Quinlan says.
What about exempt-market securities? I have several of these "get-rich-quick" opportunities that proved to be anything but. They are now worthless but I do not know how to capture the capital loss for tax-reporting purposes.
Exempt-market securities are often higher-risk investments that are sold without a prospectus to accredited investors. Unlike publicly traded shares, they aren't listed on an exchange and are therefore less liquid.
However, if the security has become worthless you can still claim a capital loss just as you would with a delisted stock, Mr. Quinlan said. "It would be the same rules. If [the company] is insolvent or bankrupt, you would take the election [under Section 50(1)] and go from there," he said. "It doesn't matter if it's publicly traded or not."
John Heinzl