When your club transfers appreciated shares to a fully withdrawing member, the unrealized gain associated with those shares is not immediately realized by the remaining members. Instead, it is deferred, meaning the remaining members will eventually realize their share of those gains, but only when they themselves fully withdraw from the club.
The club uses the appreciated shares to pay the withdrawing member. The gain that would have been realized if the shares were sold is tracked as a unrealized or deferred capital gain for the remaining members. No one pays tax on that gain at this moment.
For the remaining members:
The deferred gain is recorded in myICLUB (see the Deferred Capital Gains Report). The cost basis for the remaining members does not increase as it would if the shares were sold; instead, their cost basis stays lower by the amount of the deferred gain.
At that time, their share of the deferred gain is "realized" because their final withdrawal will reflect a higher capital gain (because their cost basis is lower) than if shares had been sold to fund a withdrawal; they will report and pay tax on that gain.
