tax refund - offset capital losses in 2008 with gains in 2005 - how does it work ?

zen said:

Hello,

I had capital gains in 2005 and losses in 2008 so the 'opportunity' to offset them.

I do not understand the process itself.

Will I get a tax return later because of these losses ?

I still have to pay some taxes for 2008 so I have to pay them by 30th of April.

Would it not make more sense the income to be reduced with this offset so I pay less now and get nothing back later rather than pay more now and get something back later.

Am I missing anything ?

Thanks

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Zen: Next week is "tax theme" on the blog and this is exactly one of the posts I'm featuring.

The short answer is you have to file a T1A form - request for loss carry back. Area III is the one you need to fill in. It is fairly self-explanatory, but I'm going to walk you through it in my post next week.

You need to fill out form T1A
http://www.cra-arc.gc.ca/E/pbg/tf/t1a/t1a-08e.pdf

More detail info can be found here:
http://www.cra-arc.gc.ca/E/pub/tg/t4037/t4037-08e.pdf

Thank you for the answers.

I filled out that form using StudioTax but the 'issue' is not here.

It is the process itself as the following would be the steps:

1. I owe taxes so I have to pay them by April, 30.
2. CRA will send me a tax return cheque because of the capital losses.

Does it work this way ?

I would have combined step 1 and 2 so only a party has to send a payment.

Maybe I am not understanding your first post but capital losses can only be used to offset capital gains. Capital losses cannot be used to offset any other income.

If you have capital losses in 2008 you can carry them back to 2005 and get back some of the taxes you paid on those 2005 gains.

ghostryder said:

Maybe I am not understanding your first post but capital losses can only be used to offset capital gains. Capital losses cannot be used to offset any other income.

If you have capital losses in 2008 you can carry them back to 2005 and get back some of the taxes you paid on those 2005 gains.

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Yes I understand this (even if it is not fair - your capital gains are added to your income but your losses are not deducted from it - however nothing can be done about it ) .

Please read my 2nd post, but it seems this is the process.

zen said:

your capital gains are added to your income but your losses are not deducted from it - however nothing can be done about it

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Your capital losses must offset capital gains. You you cannot have a capital loss on your income -- that is true. You either have to go back up to three years or keep them indefinitely until you can use them some time in the futre. However, if you have business losses (different from capital losses), those can offset your income.

You'll have to do your 2008 taxes and pay anything owing. Fill out the T1A and submit it for your refund. (Not sure if you can submit both on your 2008 return so that your tax owing now is reduced. You'll have to read the manual for that.)

lb71 said:

(Not sure if you can submit both on your 2008 return so that your tax owing now is reduced. You'll have to read the manual for that.)

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Both of them can be submitted on the 2008 return, but your tax owing now is not reduced as the form does not offer a way to calculate how much you will get back.

The manual is not very clear about what happens.

However I gather I have to pay whatever I owe for 2008 and CRA will refund me later based on T1A, which I find it not very efficient as it should have been a way to pay now less so CRA would not need to issue me a refund.

Thanks !

Actually the form T1A says:

"You can apply the refund arising from the loss carryback adjustment(s) to outstanding taxes owing for any tax year."

This makes sense, but how would I know what is the refund I am entitled to ?

zen said:

Actually the form T1A says:

"You can apply the refund arising from the loss carryback adjustment(s) to outstanding taxes owing for any tax year."

This makes sense, but how would I know what is the refund I am entitled to ?

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I wrote a post about loss carryback adjustment:

Use capital losses to reduce taxable income of previous years

Finally the ‘mystery’ has been clarified.

1. I paid the taxes owed for 2008.
2. A few weeks later I got a refund and 2 notices of reassessment one for 2006 and the other one for 2007

Not that it is big deal but they rounded down the carryback for a year (even if it was above 80 cents, so I would have expected to be rounded up or ideally to use the exact value). Perhaps this is the rule but it seems odd.

It would have made sense to somehow be able to calculate on the tax return how much I would be refunded for 2006 and 2007 so not have to pay anything for 2008 and CRA to have sent me less money but perhaps it is not feasible.