Capital gains reserve
A capital gains reserve is a deduction that lets a seller report part of a capital gain in a later year when part of the proceeds of disposition is not yet received. It is claimed on Form T2017 and is subject to conditions and limits on how many years it runs.
A capital gains reserve lets a seller spread the reporting of a gain when the price is paid over time. It can apply where part of the price is payable after the year of sale, for example under a vendor take-back note.
How the CRA describes it
The CRA says a reserve usually lets you report a portion of the gain based on the proceeds not yet received. You claim it on Form T2017, and the CRA says it generally cannot be claimed in some situations that its page lists. The CRA also says that, generally, the maximum period for most reserves is four years, while a nine-year reserve period is provided for in some cases. Paragraph 40(1)(a) of the Income Tax Act limits the reserve to the lesser of a reasonable amount for proceeds payable after the end of the year and a second amount set by formula.
What to ask
- Which situations on the CRA’s list could apply to the seller or the sale?
- Does the payment schedule in the agreement fit the period the CRA allows?
- Does the sale qualify for the longer period?
Sources
This definition is checked against primary sources. Links were last confirmed on the dates shown.
- 01Canada Revenue AgencyGovernmentClaiming a capital gains reserve
- 02Government of CanadaGovernmentIncome Tax Act, R.S.C. 1985, c. 1 (5th Supp.)
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