Capital gains/losses

Question 1

Determining ACB

Answer 1

Add:

• non-deductible property taxes and interest on vacant land
• employee SOB is added to the exercise price of hte shares acquired under an option plan when determining the ACB of the shares
• the actual amount of CG, dividends and interest earned on mutual funds, where the taxpayer is issued additional units of the mutual fund in lieu of a cash payment, is added to the ACB of hte mutual funds
• Stock divdiends from Cdn companies are subject to tax, added to the cost base of the shares
• Superficial losses are added to the cost base of a property

Deduct:

• gov’t grants and assistance relating to the acquisition of capital property

Question 2

Capital gain vs business income

Answer 2

Primary intention: Did the TP intend to use the asset as an item of inventory or as a capital asset?

Factors to support intention:

• Nature of the asset
• Relationship of the transaction to the TPs business
• # and frequency of transactions
• Length of period of ownership of the asset

Conclude.

Note: TP prefer cap gain b/c taxed at 50% vs business income fully taxed.