Tonya bought shares of a small company, which she sold at a loss. She’d like to use that loss to offset some capital gains, but neither the brokerage nor the exchange can find the information she needs to determine her adjusted cost base for tax purposes.
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Q. I purchased a stock 15-plus years ago on the TSX Venture Exchange, through a brokerage firm. That firm changed company names multiple times since the purchase. When I went to sell the deadbeat stock last fall, the fourth or fifth incarnation of the company had no records of my purchase and told me to look in my records. Many moves and a flood later, I do not have those records.
I suffered a loss in the particular stock and would like to apply it to gains this year, but I have no documentation of the transactions. I have emailed a few different folks at the TSX but no one has responded. How can I get a complete history of my stock transactions on this exchange? The stock was held in a non-registered account.
A. Even though brokerage firms should keep accurate records of stock purchases, sales, reinvested dividends and stock splits, it is important to note the fine print. Statements and transaction reports, including those sent out to summarize annual capital gains and losses for tax purposes, often state that book values may not be accurate.
Ultimately, it is incumbent upon a taxpayer to maintain their own records. This is why brokerage firms used to mail out transaction slips to investors when they bought or sold a stock. I can attest firsthand to seeing inaccurate book values on statements and transaction summaries.
Some brokerage firms can go back and dig up historical records, potentially for a fee, but with multiple mergers along the way, I can imagine your purchase records no longer exist at the brokerage, Tonya.
When you file your tax return, you report your capital gains and losses on non-registered investments on Schedule 3—Capital Gains (or Losses). You report your proceeds of disposition (sale price) and your adjusted cost base (purchase price with any applicable adjustments). You do not have to send documentation of your adjusted cost base, but you do need to be reasonably confident and able to justify your adjusted cost base (ACB) if Canada Revenue Agency (CRA) asks you to do so.
If you know when you bought the shares, you may be able to go back and determine the stock price at that time using information from the company, the TSX or financial websites. The number of shares you own may have changed along the way if the company did a stock split or reverse split, if there was a merger where you received cash or shares of a new company, if there were reinvested dividends (unlikely), etc.
Another alternative is to try to determine how much you originally invested. Presumably, you have a rough idea of the dollar value of your initial investment from 15 years ago. If you can rule out whether there were any mergers that resulted in you receiving cash or shares along the way, you can reasonably assume that your initial investment is your adjusted cost base for tax purposes.
A capital loss in a non-registered account can be claimed against capital gains for the current year, carried back up to three years to reduce previously realized net capital gains, or carried forward to claim against future capital gains.
The Toronto Stock Exchange is a stock market for large Canadian companies, while the TSX Venture, where you bought your shares, is for smaller emerging companies. An important lesson about investing in small companies is that they can be volatile and are more likely than larger TSX-listed stocks to go to zero. Small companies are also more likely than larger companies to go up a lot in value, and this is often part of the investor motivation to buy them.
Small companies can be more volatile than larger companies, and that volatility may lead to small-capitalization companies outperforming large-cap stocks as a group over the long run. In other words, investors are willing to pay more for large companies than for small companies, so many people feel there is a small-cap premium that may exist for investors.
Part of the problem with accessing that premium is that buying a single small company is risky business; these days, it is cheaper and easier to buy a selection of small companies using a discount brokerage account, mutual fund, exchange-traded fund or portfolio manager.
The moral of the story is to track your adjusted cost base if you are a do-it-yourself investor, and to be cautious when investing in junior companies, as they can be volatile and can become insolvent.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.