Question

13. On February 12, 2019 he received 2,000 shares of BRX, a Canadian public corporation from his late mother’s estate. His mother purchased these shares at a weighted average cost of $3.75 a share. The fair market value of these shares on the date of transfer was $5.50 per share. Allen purchased another 100 shares on March 5, 2019 at $4.85 a share. On April 1st the company paid out a stock dividend of 10%, which resulted in an increase in the paid up capital of $4.00 for each share issued. He sold 1,200 shares on July 15, 2019 at $4.00 a share. On August 10, 2019 he purchased 250 shares at a price of $4.25 a share. At the end of the year, he still owns these shares. Calculate capital gains from identical properties include superficial loss and Allowable Capital loss? This question takes place in Canada.

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A superficial loss is the loss from the disposition of property where:

The same or identical property (also known as substituted property) is acquired by the individual or an "affiliated person" during a period beginning 30 days before the disposition and ending 30 days after the disposition

At the end of the period, the individual or the affiliated person owns or has a right to acquire the substituted property.

To clarify, when an individual disposes of a capital property and the same or substituted property is acquired by the individual or an "affiliated person" within the 61 day period, the loss will be considered superficial and deemed to be nil.

In this question Allen has received 2000 shares from his late mother's estate, fair market value as on the date of transfer is $5.50 per share

Feb 12, 2019

So the cost of acquisition will be

$11000

(2000*5.50)

March 05, 2019

Allen purchased another 100 shares at $4.85 per share

Purchase price of 100 shares

$485

(100*4.85)

July 15,2019

Allen sold 1200 shares (assuming he has sold shares that were acquired from his mother's estate) at $4.00 per share

So loss on sale of sale of 1200 shares

Sale consideration

$4800

(1200*4)

Less:

Acquistion cost for 1200 shares

$6600

(11000*1200/2000)

Total Gain/(loss)

($1800)

Aug 10,2019

Allen purchased 250 shares at $4.25 per share

So we can analyze from this that he has purchased 250 shares just within 30 days from the date of sale of 1200 share i.e., July 15,2019, so the loss on 250 shares is to be considered as superficial loss and as per income tax laws it is not allowable and rest of the loss can be claimed as capital loss. Calculation given below for better understanding

Superficial loss on 250 shares is

Particulars

Amount (in $)