Chapter7 - Capital Gains: An Introduction Chapter 7 By...

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Unformatted text preview: Capital Gains: An Introduction Chapter 7 By James B. MacNeill History No tax on capital gains until 1972 New rules created, much complexity Capital vs. Income Income Tax Act does not define a capital gain The Based on judicial decisions Generally Primary based on behavioural factors and secondary intent Badges of Trade Relationship of the transaction to the taxpayer’s business Nature The of the activity associated with the trade nature of the asset Frequency Length of the transaction of ownership Corporate objectives Terminology Proceeds of Disposition $xx Section 54 Adjusted Cost Base $xx Section 54 Expenses of Disposition $xx Section 40(1) Reserve Claimed $xx Section 40 Capital Gain $xx Section 39 Allowable Capital Loss $xx Section 38 Proceeds of Disposition Defined in section 54 Any transaction or event entitling a taxpayer to proceeds of disposition Deemed Disposition Change in use - section 45(1) Death of a taxpayer - section 70(5) Gift - section 69(1) Immigration - section 128.1(1) Adjusted Cost Base Defined in section 54 Capital cost for depreciable property As adjusted in section 53 V-day value Exemptions Principal residence Reserves Taxable Capital Gain 1/2 of capital gain after October 17, 2000 Business Investment Losses Found in section 39(1)(c) Relate to shares and debt of small business corporations See section 248 for a definition Given special treatment Capital Gains Deduction Found in section 110.6 Applies to shares of a small business corporation Shields taxation on $500,000 of capital gains Disposition of Canadian Securities Exception to Common Law doctrines Rules found in section 39(4)-(6) Capital gains treatment for all time on Canadian Securities General Rules Section 40(1)(a)(i) Proceeds of Disposition Minus Adjusted Cost Base Minus Costs of Disposition ACB Cost of property - accounting concept Includes freight, exchange, customs, GST for exempt activities Reserves Section 40(1)(a)(iii) Exempt from Current Taxation Lesser of: 1) Proceeds Not Due X Gain Total Proceeds 2) 20% of Gain X Number of Preceding Years Adjustments to Cost Base See Section 53 Principal Residence Designation Found in section 40(2)(b) Generally exempts from sale the proceeds from a house sale Dwelling must be designated one a year-by-year basis Done at the time of disposition Seasonal residences also apply Exempt Formula 1 + # of Years Designated # of Years Owned X Gain Personal Use Property Found in section 40(2)(g)(iii) Used primarily for personal use and enjoyment Gains taxed Losses not allowed Proceeds and cost are deemed to be at least $1,000 Listed Personal Property Subset of personal use property Losses are allowed against gains from personal use property See definition in section 54 Pooling of Identical Assets Found in Section 47 Floating Weighted Average Method Disposition of Shares Acquired under a Stock Option Rule found in section 7(1.31) Exception to the identical property rules Based on a designation under certain circumstances Allows for the total deduction of the employment benefit (7(1)) ABIL ’s Special rules to allow for deduction against other income See section 3 Definition found in section 39(1) Clawed back by capital gains exemption claimed Superficial Loss Found at 40(2)(g)(i) Defined in section 54 Repurchase identical property within 30 days of sale Loss denied Denied loss added to cost base Capital Gains: An Introduction Chapter 7 By James B. MacNeill ...
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This note was uploaded on 09/30/2008 for the course ACCT 360 taught by Professor Jones during the Summer '08 term at Windsor.

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