Acco340Lecture 7 - Capital Gains

Acco340Lecture 7 - Capital Gains - Lecture7 1 Background...

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                                                                                                                                                                                Lecture 7    IGNORE     -Non-arm’s length transfers- pages 342-349        CAPITAL GAINS AND LOSSES-Chapter 8                     -Deemed dispositions pages -358-364   Read only - Foreign currencies -pages 370 -372 1. Background                                                            Until 1972, no income tax levied on capital gains. Capital gains tax regime that became effective January 1,  1972 was a compromise between 2 views as to whether capital gains should be taxed (inequities in the  taxation system versus the inflation component of a capital gain and the need to replace assets of a going  concern) The compromise was that only 50% of the capital gain would be taxable and 50% of capital losses  would be allowable. In 1985, complex ITA provisions were enacted whereby an individual Canadian resident could enjoy over his  lifetime, an exemption for capital gains. By 1994, the general tax-free capital gains exemption was $100,000  and $500,000 for certain specific assets.  The general capital gains tax exemption of $100,000 was  abolished in  1994.   However, in 1994, taxpayers  were offered an opportunity of an election to deem a disposition of capital property up to their fair market value,  so as  to trigger a capital gain which could be offset by the $100,000 capital gain exemption, thus resulting in a  nil capital gain and  establishing a higher cost basis for any future actual dispositions . However, the disposal of certain assets continue to be eligible for a “super” tax-free capital gain exemption of  $750,000 in 2010., These special assets are:         i)  shares or debt of a qualifying small business corporation        ii)    qualifying farm   property ;        iii)   qualifying fishing properties   The taxable capital gains inclusion rate has changed over the years, as follows: 1972 to 1987                  - 50%                  Feb. 28/00 to Oct. 17/00 -66 2/3% 1988 to 1989 - 66 2/3%                  Oct. 18/00 to Present -50% 1990 to Feb. 27/00      - 75% For 2000,  effectively, there were 3 different inclusion rates. It is important to know the inclusion rate of prior  years, to properly calculate the amount of  allowable capital losses that can be carried forward  to a current  year in which a capital gain has occurred.  
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