Superficial losses
For dispositions that occur after April 26, 1995 (other than dispositions that occur before 1996 according to a written agreement made on or before April 26, 1995), a superficial loss can occur when you dispose of capital property for a loss, and:
· you, or a person affiliated with you, buys, or has a right to buy, the same or identical property (called "substituted property") during the period starting 30 days before the sale and ending 30 days after the sale; and
· you, or a person affiliated with you, still owns, or has a right to buy, the substituted property 30 days after the sale.
Some examples of affiliated persons are:
· you and your spouse;
· you and a corporation that is controlled by you or your spouse; and a partnership and a majority-interest partner of the partnership.
If you have a superficial loss in 1999, you cannot deduct it when you calculate your income for the year. However, if you are the person who acquires the substituted property, you can usually add the amount of the superficial loss to the adjusted cost base of the substituted property. This will either decrease your capital gain or increase your capital loss when you sell the substituted property.
In certain situations, this type of loss is not considered a superficial loss. Some of the more common situations are when:
· you are considered to have sold the capital property because you became or ceased to be a resident of Canada;
· the property is considered to have been sold because the owner died;
· the disposition results from the expiry of an option;
· you are considered to have sold the property because you changed its use; or
· for dispositions that occur after April 26, 1995, you disposed of the property and within 30 days after the disposition you became or ceased to be exempt from income tax.
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