Stock market gains or losses do not have an impact on your taxes as long as you own the shares. It’s when you sell the stock that you realize a capital gain or loss. The amount of gain or loss is equal to the net proceeds of the sale minus the cost basis.

How does a taxpayer value an item of stock that is obsolete?

13. As a general rule, any stock which a taxpayer keeps on hand must be attributed some value. Therefore, obsolete stock which remains on hand should generally be valued at its scrap value. If the obsolete stock can be broken down into other items of saleable stock, those items should be valued under subsection 31(1).

How can you dispose of obsolete stock?

Scrap it. Totally obsolete inventory can often be sold for the materials it contains, metal or cloth, for example. Scrap dealers will come and get it, and if it has any value, they’ll pay a small fee. In the worst cases, you will have to pay to dispose of it.

How does trading stock affect your tax return?

The taxpayer has applied the stock for any other purpose other than the disposal thereof in the ordinary course of trade or the private consumption thereof. Where the stock is disposed of for less than its market value, as contemplated above, the amount included in the taxpayer’s taxable income is reduced by the consideration received therefor.

What happens to stock prices when they fall?

If prices are falling, people often rush to get out before prices fall too far. Again, this might mean that you’re selling a stock for $45 that was valued at $50 yesterday. That’s no way to make money, either.

How are declining companies valued in the market?

As human beings, we are hard wired for optimism and reflect that with positive growth rates and higher cash flows in the future for the companies that we value. When valuing declining firms, we have to go against the grain and estimate cash flows for the future that may be lower than cash flows today.

How is the market value of a trading stock recouped?

The market value of the trading stock is now deemed to be recouped by the taxpayer (and thus must be included in his income) where: He has donated the stock; He has disposed of the stock for less than its market value, other than in the ordinary course of trade;