smelly wrote:I’m not 100% sure you’re getting it adrian2.

Ditto.

smelly wrote:Joe invests $5000 in a LSIF in 2003. He receives a $1500 tax credit so his net cost is $3500. Seven years and eleven months later, the mkt value of his original investment has dropped to $3600. Joe’s bummed out so he redeems his units and receives the net proceeds of $2100 – the $3600 mkt value minus the clawback of the $1500 he received on his tax refund back in 2003. But this does not create a capital loss since his ACB is $3500 – the original $5000 purchase price, minus the $1500 tax credit – which is less than his gross proceeds of $3600. The good news is that it’s not a $100 capital gain either since the proceeds would have to be greater than his gross cost of $5000 to be considered a capital gain.

Wrong. It is a capital loss - you should compare the ACB of $3,500 with the

net proceeds of disposition of $2,100 (which, as Dan pointed out, should subtract any DSC penalty as well).

Joe has a $1,400 capital loss.

smelly wrote:Bill invested $5000 too but his LSIF was a real dog. Seven years and eleven months later it’s mkt value is $2000. If he sells at that price, he will have a capital loss of $1500 because his gross proceeds of $2000 will be $1500 less than his net cost.

If Bill has to repay the tax credits and nets $500 cash-in-hand after the sale, Bill has a $3,000 capital loss (= $500 proceeds of disposition after tax credits clawback - $3,500 ACB after tax credits).

Another example for you which will fit your warning, but is not applicable in Jon's case:

Smeagol invests $5000 in a LSIF in 2003. He receives a $1500 tax credit so his net cost is $3500. Eight years later, the mkt value of his original investment has dropped to $3600. Smeagol’s bummed out so he redeems his units and receives the net proceeds of $3600. But this does not create a capital loss since his ACB is $3500 – the original $5000 purchase price, minus the $1500 tax credit – which is less than his proceeds of $3600. The good news is that it’s not a $100 capital gain either since the proceeds would have to be greater than his gross cost of $5000 to be considered a capital gain.