Ch. 14 - Capital Gains/Losses Special Rules #2

Question 1

Replacement Property:

Two situations in which replacement property rules apply

Answer 1

• involuntary disposition (lost, stolen, destroyed or expropriated)
• voluntary disposition (sold)

Question 2

Replacement Property:
Types of property for:
1. voluntary
2. involuntary

Answer 2

1. Real property (land / building)

2. any kind of property other than vacant land

Question 3

Replacement Property:
Use of Property
1. Voluntary
2. Involuntary

Answer 3

1. must be used in a business

2. Did not have to be used in a business to earn income

Question 4

Replacement Property: Timing of replacement

1. Voluntary
2. Involuntary

Answer 4

1. 12 months following tax year end in which property was disposed of
2. 24 months following the tax year end in which property was disposed

Question 5

Replacement Property:

Capital gain deferred to the extent:

Answer 5

• that proceeds are reinvested in the new property

Question 6

Replacement Property:

Amount of capital gain deferred

Answer 6

Lesser of:

i. the capital gain (proceeds less cost)
ii. cost of replacement property less cost of original property

Question 7

Replacement Property:

Deferred recapture calculated as

Answer 7

lesser of

i. (lesser of proceeds and original cost of original property) less UCC of replaced property
ii. cost of replacement property

Question 8

Deferral of Capital Gains on disposal of Small Business Investments:
what is an eligible small business corporation

Answer 8

1. A CCPC using substantially all (90%+) of its assets to carry on active business Principally in Canada
2. A CCPC where the carrying value of assets of the CCPC and related CCPCs are equal to or less than $50M

Question 9

Deferral of Capital Gains on disposal of Small Business Investments:
conditions to meet

Answer 9

1. individual must have owned the shares for the 185 day period before sale
2. replacement shares must be acquired within 120 days of the end of the year in which replaced shares were sold

Question 10

Deferral of Capital Gains on disposal of Small Business Investments:
Maximum deferral

Answer 10

capital gain x ((lesser of proceeds and cost of replacement shares) / proceeds of disposal)