What Exactly Are Capital Gains?

What Exactly Are Capital Gains?

Now that tax season is upon us, we thought we should reflect on some of the more common discussions we have had with clients throughout the year about taxes and how they relate to investments. Generally, a capital gain is an increase in value of an asset during the time you own it.  In this Portfolio Minute, we will look at the differences between market value, book value, and net invested value.

Book Value vs Market Value

The market value of a mutual fund is the value of the fund at a specified point in time. This is calculated by the NAV (net asset value) or price of the mutual fund multiplied by the number of units an investor holds. Book value (or the adjusted cost base) on the other hand, is all contributions into a mutual fund plus all reinvested dividends minus all withdrawals.  Funds are valued at the end of each business day.

Book Value vs Market Value

While book value versus market value is valuable for tax purposes, a common mistake investors tend to make is comparing the book value against the market value to determine a fund’s performance. This can be misleading as it is not always an accurate reflection of the investor’s total return. For example, if an investor had a mutual fund with a market value of $1,000 and the book value was $1,050, the investor perceives that there is a loss of $50.

Book value helps an investor or your advisor determine if the investment you hold is in a capital gain or capital loss position. A capital gain or a loss is only realized when a redemption from the mutual fund is made. If there is a gain at the time that the redemption is made, 50% of the capital gain is taxed at the marginal tax rate of the investor. If there is a loss at the time of the redemption, 50% of the capital loss can be applied back up to three years or carried forward indefinitely to offset any future capital gains.

Net Invested vs Market Value

Now that we have taxes sorted out, let’s move on to the age-old question:  How have my investments done?  A better way to assess the performance of the mutual fund is to subtract the initial amount invested (also known as net invested) from the market value. Using the example from above, if the investor made an initial purchase of $900 and made no contributions then there is an increase of $100 ($1,000 – $900) in the mutual fundAt the same time, the book value of $150 came from reinvested dividends thereby giving us a higher book value. Finding net invested on your statements isn’t always easy to find but if this is something clients are interested in we can easily provide it.

When assessing the performance of a fund, the net investment is subtracted from the market value. This tells us if there is an increase or decrease in the total return of the investment. Some, but not necessarily all, of this gain will be found on a T3 or T5 slip indicating the total income earned and reinvested in the fund.

By contrast, when assessing the tax implications of redemption we need to subtract the book value from the market value, producing a capital gain or loss. This gain or loss will be reported on a T5008 generated by the fund company telling us if there was a capital gain or loss to be reported.

One of the many benefits of working with CH Financial is having one firm handling both investments and taxes.  We take responsibility for both, thus making your life easier!

In our next Portfolio Minute, we look at the question, “My investment is down, so why do I still owe taxes?”

Best regards,

Devin Gorgchuck, Wealth Advisor

& Your CH Financial Team


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We’re looking for aspirational clients who require the whole spectrum of financial services because managing the whole is how we’re able to deliver unbeatable value – it’s our “secret sauce.”If this describes you, let’s set up a meeting andget to know each other.

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I just want to say we have been with your team since 1993, and we have never had any bad advice. The investments you set up for us during this time has paid for university education for our two granddaughters and provided a significant monthly income for us to augment our pensions.

We are with you for the long run and are not going anywhere. Jeremy has told us that at these times the numbers tend to scare you, but you haven’t really lost anything if you don’t panic and sell.

Ken M, Calgary

With CH Financial since 1993

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When I became a client of CHF it was a real game-changer as I was going through a very difficult time both professionally and personally.

I went through a divorce and the loss of a job and a parent, all within a 12-month period. While it was very tough to deal with at the time, I was reassured by the fact that the team at CHF had my back and really cared about me and what I was going through.

Looking back now, I’m not sure how I would have managed without the support of the CHF family.

Jeremy and his team were there every step of the way to help me navigate my way through the complexities of a divorce and inheritance. They got me back on track both financially, as well as emotionally.

I have now been a client of CHF for over 10 years and thanks to their expertise, I know that my family will be well taken care of for many years to come. I am now in a position where I don’t need to worry about money thanks to a solid financial plan.

I would highly recommend the CHF team to others going through life-changing and difficult situations as your financial partner.

Linda, Victoria

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As an investment industry professional, I am constantly on the go and maximizing my peak career earning years in my 40s. With travel and work commitments I am very limited for time to spend with family and do the things I love to do and chose CH Financial to allow me more freedom and lifestyle balance.

Being in the investment industry my whole career and an extremely busy professional, I know I could probably do a good job at managing my money as I work in the industry after all while I rely on and trust the CH Financial team that they will take care of the details, both growing my assets as well as taking care of every aspect of my financial situation, including my tax, investments and insurance, they simply take away the stress of having to worry about it all and help me to navigate the complexities for me so it all meshes together and importantly saves me valuable time and headaches.

At the end of the day, the reality is I truly value my time and the opportunity cost of my time and would rather hire the best in the industry so ultimately my wife and I can do the things that we love to do, have more leisure time, relax and enjoy spending time in the great outdoors, exploring new countries, hiking in the mountains and volunteer work.

Since engaging CHF more than 5 years ago we have enjoyed significant growth in our investments but more importantly, we have peace of mind and sleep much better at night knowing the team at CHF has our financial back and anything financial they will take care of for us.

I would have absolutely no hesitation in recommending the team at CHF to other career-focused busy professionals who really value their time and lifestyle balance.

Kevin & Sharron, Calgary

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Prior to joining CH Financial as a client, I had been partially managing our investments and using a bank-owned broker for many years, with moderate success. When we became clients of CHF, I quickly realized how little I knew about the complexities of managing investments and the importance of seeking out the best specialists in the industry to assist with my family’s full financial picture.

Brian and the team at CHF encouraged us to take an introspective look at our assets and expenditures and even helped us implement a comprehensive budget. The team really stepped up to take care of all aspects of our financial picture, including portfolio design, CH Financial introduced us to a lawyer who took care of everything for us, estate planning and tax, while helping us simplify our financial affairs.

Being of the sandwich generation my wife and I spend considerable time caring for our surviving parents and our grandkids, so

freeing up valuable time is essential to allow us to do the things we love to do. The team at CHF takes care of the details and today my wife and I enjoy a comfortable, stress-free financial situation.

Over the years as a client of CHF, both our portfolio and wealth has grown exponentially, more than we could have ever imagined. Now that we are both happily retired, having the CHF team in our corner helps us to sleep better at night knowing that our somewhat complex financial puzzle is being looked after by a team of people that really care, as opposed to being treated like a number by a big bank.

I would have no hesitation in recommending the CHF team to others looking for a superior financial home in Calgary and a safe place to invest your hard-earned money.

Ian C, Calgary

Comfortably retired thanks to CH Financial