I'm curious what is my capital gain for tax purposes if I trade a security and never sell my entire position?

Here's an example of what I mean:

  1. In January, I buy 10 shares of Stock A at $1 per share.
  2. In February, I buy 10 shares of Stock A at $2 per share.
  3. In March, I sell 1 share of Stock A at $3 per share.

What would my capital gains in March be? Relative to January, my capital gains would be $2 (March's $3/share subtract January's $1/share). Relative to February, my capital gains would be $1 (March's $3/share subtract February's $2/share). Is it either of those, or something else?

I'm based in Canada.

  • 1
    The specific answer to this requires additional information. Did you direct your broker to sell a specific share (in which case, your election is your answer)? If you did not, does your broker publish their default basis accounting or allow you to select one from several options for your account? "FIFO" (which would be a January share) is common but not universal. – user662852 Apr 13 at 20:38
  • the broker website doesnt' seem to give me the option of specifically which share to sell. I'll hav eto research what is the default accounting basis for my broker – John Apr 13 at 22:04

Adjusted cost base
In some cases, special rules may apply that will allow you to consider the cost of a property to be an amount other than its actual cost. This section explains these rules.

Identical properties
Properties of a group are considered to be identical if each property in the group is the same as all the others. The most common examples of identical properties are shares of the same class of the capital stock of a corporation or units of a mutual fund trust.

You may buy and sell several identical properties at different prices over a period of time. If you do this, you have to calculate the average cost of each property in the group at the time of each purchase to determine your adjusted cost base (ACB) (dispositions of identical properties do not affect the ACB).

The average cost is calculated by dividing the total cost of identical properties purchased (this is usually the cost of the property plus any expenses involved in acquiring it) by the total number of identical properties owned.

Any amount reported in box 42, "Amount resulting in cost base adjustment," of the T3 slip represents a change in the capital balance of the mutual fund trust identified on the slip. This amount is used when calculating the ACB reported on Schedule 3, Capital Gains or (Losses) in 2020 for the property in the year of disposition.

source: https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/t4037/capital-gains.html#P1185_82580

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