Ch. 9 Recapture and Non-arms length transfer of Depr Prop (UCC) Flashcards
When can CCA be claimed on depreciable capital property?
Only when it is available for use, unless:
- Building is acquired - when 90% or more of the building is avaliable for use for the purpose for which it was acquired
What happens if there is a short taxation year due to: startups, ceasesing operations, acquisition control
CCA claim fo rall classes except class 14, is restricted to the CCA by the number of days in the year/365
What about non-arm’s length transactions and the half-year rule?
It is not considered an accelerated investment incentive property.
Half year rule also does not apply to depreciable capital property acquired in a non-arm’s length transactions if the property was owned for more than one year, and if it was used to earn busiuness or property income.
Why is there an addition to UCC for non-arms length transactions?
Addition is limited to when selling price is greater than original.
It is the orignal cost + taxable capital gain realized by the non-arms length vendor
This ensures that the purchaser cannot claim CCA on the portion of the purchase price that was not taxed in the vendors hand (nontaxable half of the capital gain) - resulting in future recapture.
Note: Credit to pool is UCC at transfer and proceeds
what are some common items to add back to business income?
Income tax - current and deferred/future taxes
interest and penalties on late payments of income taxes
accounting amortization
recapture of CCA
accounting losses
taxable capital gains
charitable donations (non-ref tax credit ind, div c corp)
political donations (not deductible - only for ind)
scientific research expenditures deducted for acctg
reserves and contingent liabilities (not yet paid out portion)
warranties (not yet paid out portion)
pension liabilities (not yet paid portion)
1/2 meals and entertainment
club dues and rec fees (no yachts, camp, lodge, golf or other exp things)
bond discount amortization
automobile mileage allowances, unless taxable benefit (.59 for first 5k, .53 each km after)
leasing costs on passenger vehicles in excess of permitted
equity losses on investment - using equity acctg
dividends received on investments using equity
impairments/write-downs
illegal payments
foreign advertising (dedcitble if it’s for a non-canadian market)
personal or living expenses - not deductible at all
life insurance where corp is the benf (unless require as collateral, lender is restricted fincnial inst, interest payable is deductible)
convention expenses (limited to 2/year)
foreign taxes paid
unpaid amounts to non-arms length (brought back in 3rd year)
carrying charges on vacant land - deductible to inc earned
soft costs on construction or renovation- not deductible, added to cap cost
What are some common items to deduct
CCA
terminal losses
financing expenses
bond premium amortizatoin (opposite of above)
accounting gains
allowable capital losses
scientific research expenditres deductible for tax purposes
pension contributions to trustee (RRSP, RPP, DPSP)
cash paid for warranties
allowable business investment losses (div c)
landscaping costs that have not been deducted
equity income on investments using the equiry method
What are the criterias for replacement property (voluntary)
- sells real property (land or building)
- must have been used in a business
- must have been acquired for the same or similar use
- must be within 12 months following taxation year in which it was sold
What are the criterias for replacement property (involuntary)
- any capital property is applicable
- must have been lost, stolen, extropriated, or destroyed
- does not need to earn income or be business
- replacement must be similar use
- must be replaced 24 months after the following end of the taxation year
How do you calculate the deferred capital gains?
Lesser of:
i) proceeds - OC
ii) cost of replacement - OC
How do you calculate deferred recapture?
Lesser of:
Lesser of:
- Proceeds
- OC of replaced property
LESS
UCC of replaced property
Cost of replacement Property
