In order for your accountant to prepare an accurate year-end securities accounting for your tax return, it makes sense that they need accurate and detailed information about your securities transactions. Many people may not understand the impact missing information can have on their bottom line. These results trickle down to your capital gains/losses and therefore tax payable or deductible!

Do you know the results missing information has on your average costs?

Handing over the brokerage account summaries you receive from your brokerage firm may seem logical, but often important information is not included in these summaries. When this information is not provided to your accountant,  it may result in inaccurate gains or losses and therefore inaccurate taxes paid.

For instance, Brokerage Summaries may not show:

  • the costs of securities which are deposited/transferred into a brokerage account are generally brought in at zero cost. If costs are not accounted for, it can greatly affect your moving average and therefore your profit/loss when you sell them.
  • the correct cost of securities obtained from a stock option exercise.  When an optionee is going to receive a T4 from the Issuer for the exercise of these options, the costs on the underlying stock should be brought in at market price, and not exercise price, even if the $$ to exercise the options is deducted from a brokerage account.

When this type of information is missing from the information provided to your accountant and not accounted for on your tax return, the result can impact the taxes you pay when the stock is sold.

Equally important is ensuring that all information related to the purchase or sale of any securities is provided to your accountant. When this information is missing transactions and where all brokerage information is not provided to your accountant, this will also have tax implications.

Case In Point

The following examples are provided to help show the potential tax implications of not ensuring all transaction details and information is provided to your accountant.

Example #1 – ABC Mining – Profit

This example shows a purchase of 100,000 ABC shares @ $.50 for a total of $50,000 in January and then a sale of 100,000 ABC shares @ $1.25 in June, for a profit of $75,000. Your moving average is $.50 per share.

However, you forgot to tell your accountant of another purchase of 100,000 shares @ $1.00 in March which now changes your moving average to $0.75 per share on the 200,000 shares.

By including this missing transaction, when you sold the 100,000 shares for $1.25 your profit became $50,000, instead of $75,000. You unnecessarily paid taxes on $25,000 of capital gains.

The images below show examples of the above scenarios. 


 

Sample of Purchase & Sale of Shares

Example 1: Purchase and sale of shares – without the 100,000 shares that were purchased, unknown to the accountant.

 

Sample of Purchase & Sale of Shares

Example 1: Purchase and sale of  shares – including the 100,000 purchased but missing in the previous example.

 


 

Example #2 – ABC Mining – Loss

Here is an example of the same transaction where you sold shares at a loss.

You purchased 100,000 ABC shares @ $.50 for a total of $50,000 in January and then sold 100,000 ABC shares @ $0.30 for a total of $30,000 in June, resulting in a loss of $20,000.

You did not tell your accountant of another purchase of 100,000 shares @ $0.75 in March which now changes your moving average to $0.625 per share on the 200,000 shares.

By including this missing transaction, when you sold the 100,000 shares for $0.75 your loss became $32,500. You missed $12,500 of available losses.

The images below show examples of the above scenarios. 


 

 

Sample of Purchase & Sale of Shares

Example 2 (Loss): Purchase and sale of shares -without the 100,000 shares that were purchased, unknown to the accountant.

 

Sample of Purchase & Sale of Shares

Example 2 (Loss): Purchase and sale of shares – including the 100,000 purchased but missing in the previous example.

 


 

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