From: AlanBaggett@volcanomail.com   
      
   When Is A Loss Not A Loss? : CRA SOTW   
      
   Article by Keith Vincent, MNP   
      
   We all hate to lose money on a purchase or investment. Sometimes a little tax   
   relief can help ease the pain if you can deduct the loss against capital gains   
   you've realized, but often that very real loss is a 'nothing' for tax purposes.   
      
   One type of property that doesn't give rise to a tax loss is what's called   
   'personal use property.' If you bought a personal use vacation property, for   
   example, and sold it at a loss, you wouldn't be able to deduct the capital   
   loss against other capital    
   gains. If, on the other hand, you sold it for a gain, that would be taxable.   
   There are special rules to deal with small items where the purchase price and   
   the cost of the property are less than $1,000. Generally speaking, sales of   
   low value personal    
   items don't result in taxable events.   
      
   What if you lend money to someone and they don't repay you? Can you deduct   
   that loss? Maybe, maybe not. If you don't charge interest on the loan and   
   therefore you have no income-earning purpose, the loss would be considered a   
   nothing for tax. What if you    
   sell some personal property and agree to have the purchaser pay you over time?   
   If they don't repay the loan, that loss is more than likely not deductible as   
   well.   
      
   In the Tax Court of Canada case Elliott v The Queen (2005 TCC 135), the   
   taxpayer found herself in a situation where she lent a family company (in   
   which she had no direct interest) a total of $94,000. This amount was lost   
   when the company shut down and    
   could not repay her. In deciding against her, the judge made the following   
   comments:   
      
   Ms. Elliott's problem is not unusual, unfortunately. There are many people who   
   lend money and guarantee loans to small businesses to corporations in which   
   their spouses own shares but they do not. Many of these people are not   
   sophisticated in tax matters.   
    They do what they feel is important for the economic well-being of the   
   family. They do not consult lawyers or accountants who may advise how to   
   structure the loan or guarantee so, if something goes wrong, then, for tax   
   purposes, they could deduct at    
   least a portion of the money they may lose. Many of these people and their   
   spouses are hard-working people of modest means. They do what they think is   
   right; they are optimistic. They do not foresee possible failure. When failure   
   does come, they lose    
   everything....Our senior courts have told us there is no equity in a taxing   
   statute and as the Act is written, there is not much I can do to help Ms.   
   Elliott.   
      
   As this case demonstrates, there can be some harsh traps when dealing with   
   losses that arise from personal items or non-income producing items. But what   
   if you're dealing with your investment portfolio and you sell some stocks at a   
   loss? Surely you can    
   deduct those losses against capital gains, right?   
      
   Well, not necessarily. Let's say your investment advisor sees an opportunity   
   to sell 100 shares of a company that has lost value and use that loss to   
   offset gains you've had on other shares. That sounds like a good idea. But if   
   your investment advisor (   
   or your spouse's separate advisor) thinks that this cheap stock would be a   
   good one to hold onto in your spouse's portfolio and acquires that same 100   
   shares within 30 days of your sale, your loss is denied until your spouse   
   sells those shares.   
      
   Another situation that can arise is if you hold the same stock in more than   
   one investment account. Your investment advisor may want to sell a stock that   
   has gone down in value, but if you hold that same stock elsewhere and you   
   bought that stock in the    
   other account at a low price, you may actually have a gain because your total   
   cost of the stock has to be averaged over all of that particular stock you own   
   (regardless of the account in which it is sitting).   
      
   As I've shown here, it's very important to ensure that not only is the loss a   
   valid one for tax purposes, but that nothing is going to prevent you from   
   claiming a valid one.   
      
   The content of this article is intended to provide a general guide to the   
   subject matter. Specialist advice should be sought about your specific   
   circumstances.   
      
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