Tax Consequences of Holding a Mortgage

Where a taxpayer has disposed of a capital property and a portion of the proceeds is receivable after the end of the taxation year, the taxpayer may claim a reasonable capital gain reserve for the funds not yet received.

The amount of the reserve claimed in one year is included in income in the following year, against which an additional reserve may be claimed for amounts receivable. There is a limitation on how large a reserve may be claimed:

• 80% or less in the year of disposition
• 60% or less in the next year
• 40% or less in the third year
• 20% in the fourth year
• 0% in subsequent years

If you claim a reserve on the disposition of qualified small business shares, then your capital gains deduction for that disposition will be reduced.

Use Form T2017 Summary of Reserves on the Dispositions of Capital Property to report these transactions when tax filing time comes in the Spring.