Test 2 Flashcards
Recapture
Every year a company subtracts the capital cost allowance for an account the amount that was written off for the value of the disposition is too great and the account is in the negative. Recapture reflects the fact that you have to bring the negative amount back into income.
Capital allowance calculation
Opening balance account for each different class for every asset that the company owns \+ add new purchases - subtract dispositions x multiply by applicable CCA rate = equals expenses for the year
Who and what qualifies for a capital cost allowance
Any entity who acquires a capital asset for the purpose of producing income.
Tangible assets: asset that has some enduring life value and produces income (land not included)
Intangible assets: client or customer list, goodwill, location, name of the business, patent, franchise
Special rules: involuntary disposition
If equipment is lost or destroyed insurance will give money to replace it tax-free if you decide to keep the money it is then taxable
Special rules: change in use
If an asset goes from being a business asset to the personal asset it is deemed to have been sold at Fairmarket value and must pay Fairmarket value tax
Special rules: first year of acquisition
An anti-avoidance rule that reduces the amount of capital cost allowance allowed in the first year of ownership half of the normal rate of CCA applies
Special rules: terminal loss
It is the opposite of recapture, after all of the assets have been sold there is a realization that the assets were not appreciated enough. There is a positive balance on the account but there are no assets. There is deemed to be a terminal loss when you did not write off enough dispositions you’re able to write the whole thing off because the assets are gone.
Eligible capital property - intangible assets
Capital assets that are intangible there is no specific place
Goodwill, trademark, franchise
Declining balance method to calculate the value of the eligible capital property
Able to write off 75% of the original cost of the asset at 7% per year when sold the seller receives a capital gain and the purchaser is allowed to write it off - recapture negative amounts
Income from property: Interest income
Corporation:
Accrual basis - must pay tax when it’s earned
Individual:
accrual basis or receivable when due and payable
Income from property: Dividend income
The income that forms the dividend has already been taxed at the Corporation level they pay the higher tax the dividend just text again at the shareholder level they pay the lower tax
Income from property: Rental income
Accrual basis, it is not when you actually receive the money but when money is deemed to be earned
Deductibles:
Interest insurance maintenance utilities
Cannot create loss for building depreciation
Income from property: Royalty income
For capital growth you’re not texting me you only pay tax on it just sold you must pay tax on the profits
Capital gain (loss)
Intended purpose of the acquisition was long-term enduring to achieve benefits Benefit: financial or personal enjoyment Intention: for resale versus enduring benefit Four factors to consider: Period of ownership Nature of transaction Number or frequency of the transaction Relation to the taxpayers business
Capital gains and losses: personal use property
Things that are purchased for personal use no losses allowed
Capital gains and losses: listed personal property
Special category in income tax act for collectibles.
Because they go up in value losses are allowed.
