This page provides information on the types of investments that are considered flow-through entities, as well as how to calculate and report the capital gain or loss resulting from the disposition of shares of, or interests in, a flow-through entity. This information also applies if, for the 1994 tax year, you filed Form T664, Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, and you have an unused exempt capital gains balance (ECGB).

On this page

• What is a flow-through entity
• Exempt capital gains balance
• Disposing of your shares of, or interest in, a flow-through entity

What is a flow-through entity

You are a member of, or an investor in, a flow-through entity if you own shares or units of, or an interest in, one of the following:

1. an investment corporation
2. a mortgage investment corporation
3. a mutual fund corporation
4. a mutual fund trust
5. a related segregated fund trust
6. a partnership
7. a trust governed by an employees' profit sharing plan
8. a trust maintained primarily for the benefit of employees of one corporation or more than one that do not deal at arm's length with each other, where one of the main purposes of the trust is to hold interests in shares of the capital stock of the corporation or corporations, as the case may be, or any corporation not dealing at arm's length with the trust
9. a trust established for the benefit of creditors in order to secure certain debt obligations
10. a trust established to hold shares of the capital stock of a corporation in order to exercise the voting rights attached to such shares

Exempt capital gains balance

When you filed Form T664, Election to report a Capital Gain on Property Owned at the End of February 22, 1994, for your shares of, or interest in, a flow-through entity, the elected capital gain you reported created an exempt capital gains balance (ECGB) for that entity.

Disposing of your shares of, or interest in, a flow-through entity

When you dispose of your shares of, or interest in, a flow-through entity, calculate the capital gain or loss in the same way as with any other disposition of capital property (proceeds of disposition minus the adjusted cost base (ACB) and outlays and expenses for the sale).

Completing Schedule 3

Report these dispositions on Schedule 3 using the following sections:

• Publicly traded shares, mutual fund units, deferral of eligible small business corporation shares, and other shares for shares of a flow-through entity
• Bonds, debentures, promissory notes, and other similar properties for an interest in a flow-through entity

If you filed Form T664 for your shares of, or interest in, a flow-through entity and the proceeds of disposition were more than the fair market value, the ACB of your investments may be affected. For more information, see Property for which you filed Form T664 or T664 (Seniors).

Certain circumstances may create a special situation for a flow-through entity described in items 1 to 6 of What is a flow-through entity. This happens if you dispose of your remaining shares of, or interest in, such an entity in the 1994 to 2025 tax years and have filed Form T664. If this is the case, in the year you dispose of the shares, use the exempt capital gains balance (ECGB) available for the entity immediately before the disposition to increase the ACB of the shares or interest.

The ACB adjustment will either reduce your capital gain or will create or increase your capital loss from disposing of the shares or interest in the flow-through entity.

Forms and publications

• Guide T4037, Capital Gains
• Guide P113, Gifts and Income Tax
• Schedule 3, Capital Gains or Losses
• Form T1170, Capital Gains on Gifts of Certain Capital Property

Related Topics

• Lines 13499 to 14300 – Self-employment income
• Tax treatment of mutual funds
• Property for which you filed Form T664 or T664 (Seniors)