PROP 1020 / CHAPTER 7 Flashcards
Rental income or rental loss may be considered or “sourced” as either ________ or _________.
Rental income or rental loss may be considered or “sourced” as either “business” or “property”.
Why is the distinction between business income and property income important?
The distinction may be important in certain cases as the income tax rules differ, depending on how the income is sourced, due to the following:
certain tax credits and lower tax rates may be available if sourced as income from business income;
certain deductions are permitted from business income which are not permitted as deductions from property income
it may be important that the taxpayer is carrying on a business. To illustrate, for a partnership to exist (perhaps including a limited partnership), a business must exist. If no business were to exist, what may be intended to be a partnership may be regarded simply as co-ownership.
Generally, the rental income will be business income when _ _ _ _ _ _ _ _
Generally, the rental income will be business income when there is time, labour and attention spent on the activity.
________ income is generally passive in nature.
Property income is generally passive in nature. Rents earned by individuals are often treated as income from property on the basis the individual does not spend a lot of time, labour and attention to earn the rental income.
Rental income will be sourced as business income
when _ _ _ _ _
Rental income will be sourced as business income
when there is time, labour and attention spent on the activity.
When _______ is sold, the resulting income is taxed in full, as business income.
When inventory is sold, the resulting income is taxed in full, as business income.
TRUE OR FALSE?
When capital property is disposed, only one-half of the gain (i.e., appreciation realized) will be taxed.
ANSWER: TRUE
The Act does not contain rules for determining whether real property is regarded as inventory or capital property.
Determination is made using common law principles and criteria that have been developed over the years through court cases and precedents.
Factors include _____, ______, ______, _____, ______, and ______. <list></list>
The Act does not contain rules for determining whether real property is regarded as inventory or capital property.
Determination is made using common law principles and criteria that have been developed over the years through court cases and precedents.
Factors include primary and secondary intention, length of holding, frequency of transactions, leverage, the related business of the taxpayer, and a concept called “adventure in the nature of trade.”
If the taxpayer’s primary intention for acquiring the real estate is to trade, any appreciation realized through the sale should be treated as _ _ _ _ _ _ _ _
If the taxpayer’s primary intention for acquiring the real estate is to trade, any appreciation realized through the sale should be treated as business income.
Generally, the longer the holding period, the more likely that the property will be considered to be _ _ _ _ _ _ _
Generally, the longer the holding period, the more likely that the property will be considered to be capital property.
When the taxpayer engages in numerous transactions in real property, especially within a short period of time, the tax rules would indicate that the appreciation would be regarded as _ _ _ _ _ _ _ _ _
When the taxpayer engages in numerous transactions in real property, especially within a short period of time, the tax rules would indicate that the appreciation would be regarded as business income.
TRUE OR FALSE?
The cost of land can never be deducted from the income during the holding period.
ANSWER:
TRUE
To determine whether an expenditure on a depreciable property qualifies as a current deduction and not as a capital expenditure, the following principles are used:
The duration of the benefit (a capital expenditure provides a lasting benefit or advantage, current expense recurs after a short period of time);
Whether the expenditure restores the property to its previous condition (generally a current expense) or whether the expenditure improves or upgrades the property (capital);
Whether a repair is inexpensive in relation to the value of the asset. From a practical perspective, an inexpensive expense may be considered as a current expense whereas a capital expenditure is more costly and may be considered as a capital expenditure;
_____ is the name for depreciation of capital property for tax purposes.
CCA is the name for depreciation of capital property for tax purposes.
To qualify for CCA, an asset must be ___________
To qualify for CCA, an asset must be depreciable.
Depreciable property is defined as _ _ _ _ _ _ _
Depreciable property is defined as a capital asset that was acquired for the purpose of earning income.
