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Capital Gains Reserve

We have a client who disposed of shares in 2018 and claimed a reserve. Let’s say the proceeds were 100K, the capital gain was $80K and the reserve taken was $5K in 2018. If in 2019, the client receives $4K and won’t be receiving any more, then the client is short $1K of overall proceeds. The reserve is still $5K, but we know the client should only be taxed on $4K more, rather than the full $5K. Does anyone know how this would be reported on S3 and T2017?

Thanks for any help offered.

@eileen If, at the end of 2019, no further proceeds are expected, the reserve for 2019 is zero - you can’t claim a reserve for an amount that won’t be collected in the future.

If the reserve in 2018 was $5,000, then the “uncollected proceeds” (column F) must have been at least $6,250 (working through the formula). If your client collected only $4,000 more, the overall proceeds are short by $2,250. Which means, the gain was reduced by that much.

I haven’t got a lot of experience with this, and I’m not going to research it right now, but I think you would go back and adjust his 2018 T1 to reflect the actual gain (on S3), and adjust the reserve as necessary. Not sure if you could just put it on the 2019 T1 as a capital loss…

@Nezzer. Thanks for your thoughts on this. Those are the two options I thought of as well…adjusting the prior year or try offsetting it with a capital loss this year.

Threw the question out to see if anyone has had experience with this.