Chapter 8 Flashcards
38 Notes
historical rates of inlusion rates for capital gains
* any capital loss carryover must be adjusted to current year inclusion rates when applied
Historical Rates of Inclusion for Capital Gains
38 notes
- any capital loss carryover must be adjusted to current year inclusion rates when applied
Change in Use of an Asset
13(7)
* when an asset is changed from personal use to business, there is a deemed disposition at the lesser of FMV, OR the ACB + 1/2 of the difference between FMV and the ACB; a UCC asset class is created
* when changed to personal use, there is a deemed disposition at FMV, and the UCC asset account must be closed out; POD must be compared to CC to see if their is recapture
* Subdivision C consequences must be determined; however, there is no capital loss on depreciable property
13(7)
Change in Use of an Asset
* when an asset is changed from personal use to business, there is a deemed disposition at the lesser of FMV, OR the ACB + 1/2 of the difference between FMV and the ACB; a UCC asset class is created
* when changed to personal use, the UCC asset account must be closed out; POD must be compared to CC to see if their is recapture
* Subdivision C consequences must be determined; however, there is no capital loss on depreciable property
Personal Use Property (PUP)
54 “personal use property” (a)
* any property owned by the taxpayer and used for their personal enjoyment
* capital gains and losses are calculated the same as othe property
* CCA may not be deducted on PUP
* PUP may not have a capital loss 40(2)(g)(iii)
54
Definitions
54 “personal use property” (a)
54 “Listed Personal Property”
54 “principal residence”
54 “superficial loss”
Listed Personal Property (LPP)
54 “Listed Personal Property”
* includes drawings, paintings, jewelry, stamps, rare manuscripts and books
* the effect of dispositions of LPP is calculated differently than other capital assets, as reflected in the s.3 formula
* inclusion rate of 1/2
* LPP ACL may only be deducted from LPP TCG
* LPP carryovers have not had the inclusion rate applied to them, and are applied in division B against LPP gains, and may be carried forward 7 years per 41(2)(b), and backward three years
41(1 - 2)
(1) TCG from disposition of Listed Personal Property has an inclusion rate of 1/2
(2) LPP losses from the previous 7 years may be carried forward, and backward from the following three years
TCG from LPP
41(1 - 2)
(1) TCG from disposition of Listed Personal Property has an inclusion rate of 1/2
(2) LPP losses from the previous 7 years may be carried forward, and backward from the following three years
BILs and ABILs
39(1)(c)(iii)
a Business Investment Loss (BIL) is a special type of capital loss that occurs on the disposition of shares or debt o a small business corporation (SBC)
38(c)
the Allowable Business investment Loss (ABIL) is the BIL multiplied by the relevant inclusion rate
an ABIL loss is moved to 3(d) where it may be applied against any postive income balance
* use of an ABIL may be limited by the prior use of a Division C capital gains deduction from a prior year
38(c)
ABIL
39(1)(c)(iii)
BIL
Small Business Corporation
248(1) “small business corporation”
is a CCPC in which
* greater than 90% of assetes are used in a business
* and that business is carred on primarily in Canada (greater than 50%)
Floor Rule
46(1)
the ACB fo the PUP is deemed to be the greater of $1,000 and the actual ACB
the POD is deemed to be the greater of $1,000 and the aactual POD
46(1)
Floor Rule
no capital gains will be assessed on the sale of PUP for less than $1,000
Principal Residence
54 “pri”
any capital gains on the disposition of a “principal residence” can be exempted from a tax for the period of time it is designated as a principle residence based on the formula in section
40(2)(b)
of A - (A * B / C)
where
A is the total gain on disposition
B is 1 + number of years as principle residence, and
C is number of years the taxpayer owned the property
and B cannot exceed C
* always include TCG on problems, even where it is zero
* only one home may be designated as principle per year
* for tax purposes, the taxpayer should designate as principle the residence with the greatest increase in value per year
40(2)(b)
principal residence gain formula
45(2)
where a principal residence is converted to a rental property there is a deemed disposition per 13(7)(b); however, 45(2) allows the taxpayer to consider a residence as principal up to four years after it has been converted to a rental on an elective basis; if taken, there is no deemed disposition, but CCA may not be claimed
Superficial Loss
54 “superficial loss”
where a taxpayer has acquired an identical property within a thirty day period to another on which the taxpayer has incurred a capital loss, the loss is deemed to be superficial and is not deductible
the amount of the denied loss is added to the cost base of the replacement property
Identical Properties
47
the ACB of identical properties that have been acquired at different times for different prices will be based on the average cost of the entire group at the time of their disposal
47
Identical Properties
* the ACB of identical properties that have been acquired at different times for different prices will be based on the average cost of the entire group at the time of their disposal
Capital Gains Reserves
40(1)(a)(iii)
if POD is not received up front for a sale of property resulting in a capital gain, a reserve may be deducted from the total gain, which is the lesser of
a) CG * (POD - Cash Receipts) / (POD), OR
b) 20% * (4 - years since disposition) * CG
the latter prevents deferral of taxes for more than 4 years
40(1)(a)(ii)
the reserve is added back to income the following year
40(1)(a)
40(1)(a)(iii)
if POD is not received up front for a sale of property resulting in a capital gain, a reserve may be deducted from the total gain, which is the lesser of
a) CG * (POD - Cash Receipts) / (POD), OR
b) 20% * (4 - years since disposition) * CG
the latter prevents deferral of taxes for more than 4 years
40(1)(a)(ii)
the reserve is added back to income the following year
