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What is a Schedule 6?

August 18, 2015

Tax Question:

What is a schedule 6 as part of a T2 corporate tax return?


Schedule 6 is the primary place to report dispositions of capital property. There are six types of dispositions reported on this schedule and the most common are capital gains and losses from the disposal of shares and real estate.


Capital gains arise when you sell a capital property for more than its adjusted cost base plus the cost of the sale. For example, if a corporation sold an investment of shares in a publicly listed company, the capital gain would be calculated by taking the sales price (market value) less the purchase price of the shares and transaction fees. Capital losses can occur when you sell a capital property for less than the adjusted cost base. They can be carried back three years or carried forward indefinitely. However, they can only be used to offset capital gains. Therefore, a company would need to have sold a capital asset for a gain before a capital loss could be applied.

Schedule 6 calculates the taxable portion of the capital gains. Only 50% of the capital gain is taxable. The remaining non-taxable portion of the capital gain is allocated to the Capital Dividend Account. The balance in this account can be paid out tax-free to the shareholders of the corporation by making a special election to the Canada Revenue Agency. It is wise to elect and pay out a capital dividend before you incur a future capital loss which will offset this balance.

Allowable business investment losses (ABIL’s) are also entered on schedule 6. In order to qualify as an ABIL, the property disposed of must be a share of a small business corporation or a debt owing from a small business corporation. The ABIL must be a result of a capital loss from a property that is earning active income. ABIL’s are treated as a non-capital loss that can be carried back up to three years or carried forward up to ten years. If the ABIL is unused after ten years, then it becomes a capital loss and carried forward indefinitely.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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