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4561 Lecture 7 June 15 10

4561 Lecture 7 June 15 10 - 4561-7 1 1 AK/ADMS 4561...

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4561-7 1 1 AK/ADMS 4561 - PERSONAL TAX Lecture 7 – Investments and Capital Gains and Losses - Part II – last updated June 15, 2010 (no changes) These notes follow the ordering of topics in FIT Chapter 8. You are only responsible for what is in these notes, the problem material assigned and the examples taken up in class . The major topics are: Various Capital Gains Provisions ¶8,000 Foreign Exchange Gains & Losses ¶8,010 Part Dispositions ¶8,020 Exchanges of Property ¶8,030 and Election for additional deferral ¶8,040 Proceeds of Disposition on a Building 13(21.1) ¶8,050 Election on Change in use ¶8,060 Principal Residence Revisited ¶8,070 Leaving and Entering Canada – covered in Lecture 2 ¶8,100 Options - ignore ¶8,110 Debts Established to be bad debts (s. 50) ¶8,120 Convertible properties ¶8,130 Capital Gains Deferral - ignore ¶8,140 Certain Shares deemed to be capital property 54.2 ¶8,150 Non-arm's length transfers and attribution rules – covered in Lecture 5 ¶8,200 Death of a Taxpayer ¶8,300 Deemed Disposition on Death ¶8,310 Income Reconciliation Revisited – skip ¶8,400 Readings FIT Ch. 8: With sections omitted as per notes Income Tax Act Sections 3, 38-54.2, 70 (as per notes) Recommend Chapter 8 Exercises 1, 3 and Multiple Choice Questions 1, 5, 6 Problem Set 7: Chapter 7, Problem 4 (Sherman Stockwatcher) and 8 (Ms Plummet) on Stock Transactions Chapter 8, Problem 9 (Mary McArthur) on Death Joanne Magee [[email protected]]
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4561-7 2 2 Foreign Exchange Gains & Losses ¶8,010 (Exercise 1) TO COMPUTE CAPITAL GAINS AND LOSSES, THE ACB AND PROCEEDS ON FOREIGN SECURITIES MUST BE CONVERTED TO CANADIAN DOLLARS (on the day of the purchase/sale) - E.g., If shares or a Florida condominium was purchased for $100,000 U.S on March 1, 1994 and sold for $100,000 U.S. on February 1 of this year, you would have to find out the Cdn/U.S. foreign exchange rate at the date of purchase at the date of sale to determine the capital gain or loss for Canadian tax purposes. GAINS AND LOSSES FROM THE HOLDING OF FOREIGN CURRENCY UNDER $200 DO NOT NEED TO BE REPORTED s. 39(2) - E.g., If you have U.S. dollars in a bank account and the Canadian dollar goes down in value (from when you bought the U.S. dollars) and you sell your U.S. dollars to buy Canadian dollars, then you will have a foreign currency gain. The first $200 of foreign currency gains (or losses) per year is deemed to be nil (i.e., zero). 2.1 Part Dispositions ¶8,020: s. 43 If you dispose of part of a property (e.g., 50% of a parcel of real estate), you must allocate a reasonable amount of the cost to the portion sold What is a reasonable portion of the cost? 50% of the original cost? Not necessarily. For example, the road or water frontage of a particular property (or the part with the swamp!) might be more (or less) valuable than the rest of the property. A reasonable portion should be determined based a professional valuation. (Real estate agents can assist with the valuation of land and/or buildings) Joanne Magee [[email protected]]
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4561-7 3 2.2 Exchanges of Property ¶8,030 and Election for additional deferral ¶8,040 (Ch. 8 Example Problems 8-2 and 8-3) Replacement property rules (s. 44(1) for capital gains; 13(4) for recapture) -- this is
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