Accg_Tax_Notes_C8

Accg_Tax_Notes_C8 - CHAPTER EIGHT - CAPITAL GAINS: THE...

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CHAPTER EIGHT - CAPITAL GAINS: THE FINER POINTS 1. EXCHANGES (REPLACEMENT) OF PROPERTY - Sections 13 and 44 permit the deferral of some or all of the recapture and capital gains, if any, resulting from the disposition of property which is replaced by property used for the same or similar purpose in the same or similar business . (not necessarily in same CCA class) Specific conditions must be satisfied and an election must be filed in the tax year the property is replaced. (An election under one of these sections is deemed to be an election under the other. ie. both must be applied if applicable.) 2 types of dispositions qualify for this election: 1. Involuntary disposition of property (lost, stolen, destroyed, expropriated, bankruptcy) 2. Voluntary disposition of “former business property” (land & buildings, limited-period franchises or licences) The disposition is deemed to have occurred only when the proceeds are “receivable”. With respect to involuntary dispositions this is the day the taxpayer agrees to the amount of compensation (no more than 2 years after date of loss) or the date compensation is determined by a court. To qualify for the election, the replacement property must be acquired by: a. 24 months after the end of the year of involuntary disposition. b. 12 months after the end of the year of voluntary disposition. S44 deferral - In the year of disposition, the taxpayer may choose to: 1. Recognize the usual capital gain, if any, or 2. Elect to report the capital gain as the excess, if any, of the proceeds of disposition over the cost of the replacement property, if this amount is less than the usual capital gain. (This will be a lesser amount provided cost of replacement exceeds ACB of old property.) The ACB of the replacement property will be reduced by the amount of the deferred capital gain. (The deferred capital gain is equal to the amount by which 1. exceeds 2. above.) S13(4) deferral - For CCA purposes, if the asset is replaced before year end, the cost of the replacement property (reduced by the amount of any deferred capital gain under S44) will normally mitigate any recapture. However, where the replacement property is placed in a different CCA class or is not acquired by year end, a S13(4) election is available. This election serves to reduce the usual recapture by an amount not exceeding the cost of the replacement property. Where 13(4) is elected, the cost of the replacement property added to the appropriate CCA class will be reduced by the amount of the deferred recapture, consistent with the outcome had the replacement asset been added to the same class in the year of disposition. If the replacement property is not acquired in the same year as the disposition is recorded, the taxpayer recognizes the usual capital gain and any recapture, in the year of disposition. If the replacement property is then acquired within the allowed time frame, an amendment is requested for the year of disposition facilitating the above-noted deferrals.
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2. ALLOCATION OF PROCEEDS BETWEEN LAND AND BUILDING:
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This note was uploaded on 09/30/2009 for the course BUS 357 taught by Professor Thomas during the Spring '09 term at Western Washington.

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Accg_Tax_Notes_C8 - CHAPTER EIGHT - CAPITAL GAINS: THE...

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