Special Rules-Disposition of Identical Properties

Taxpayers will often purchase identical properties (i.e., the same security or the same bond) at different times and for different prices and sell them at different times for different prices. From an accounting perspective, different methods-such as average cost or first-in, first-out – are used to compute the cost base and capital gains. A choice of methods is not permitted for tax purposes. To minimize the wide range of results and avoid taxpayer manipulation and abuse, subsection 47(1) of the Act sets out a standard method of calculating the cost base. The method prescribed for purchases of identical properties after 1971 is the moving average basis.

Where a taxpayer owns identical properties that were acquired prior to 1972 (tax-free years) as well as after 1971, two separate “pools” are maintained. When any of the identical properties are sold, a modified first-in, first-out (FIFO) method is used, and the properties in the per-1972 pool are deemed sold before any properties in the post-1971 pool. No example is provided, as it is unusual (but not impossible) to be faced with this situation today, more than 30 years later.

The Act does not define an “identical property”. To be identical, the properties must be identical in all respects. So, two common shares in the Bank of Nova Scotia are identical properties. But, a common share is not identical with a class A share (even if it is a common class A share), nor with a preferred (or special) share. A common share in Canadian Tire is not identical with a common share in the CIBC. Two townhouses are not identical properties, even though they are in the same complex.

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