Capital Gains and Losses (Part I)

Capital Gains and Losses (Part I) - 1 Capital Gains...

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Unformatted text preview: 1 Capital Gains & Capital Gains & Losses Losses 2 + Employment + Business + Property + Other S. 3(a) Income from all sources + S. 3(b) Taxable capital gains S. 3(c) Other deductions S. 3(d) Loss (employ, bus, prop, ABIL) Net income Division B Division C deductions = Taxable Income Capital Gains & Losses 2 3 Taxable Capital Gains Taxable Capital Gains Inclusion Rate Pre -1971 1972 1987 1/2 1988 1989 2/3 1990 - 1999 3/4 2000 (see next slide) 2001-present 1/2 4 Year 2000 Taxable Capital Gains Year 2000 Taxable Capital Gains Inclusion Rate Jan 1 Feb 27 3/4 Feb 28 Oct 18 2/3 Oct 19 Dec 31 1/2 5 Capital Gain and Capital Loss Capital Gain and Capital Loss Defined Defined Realized on disposition of capital property. Classified as capital property Must be acquired & used to provide long-term or enduring benefit . Key - establishing the intended purpose ! Definition does not require that it be held for the long-term or that it must provide a benefit. Nature of the asset is not relevant. 6 Capital vs. Business Income Capital vs. Business Income Intent resale for profit Business Treatment Intent long-term Benefit Capital Treatment 7 Intention Example Intention Example Deliveries Sale is Capital Resell to Sale is Truckers Business 50% 100% 8 Intention Intention Four factors in establishing the taxpayers primary intention: 1. Period of ownership. 2. Nature of the transaction. 3. Number and frequency of the transactions. 4. Relation of transaction to taxpayers business. 9 Period of ownership by itself does not provide compelling evidence of intention. Period of Ownership Period of Ownership Long Time Short Time Speaks of Long-term intent Speaks of Short-term intent 10 Nature of the Transaction Nature of the Transaction Examine: Entitys course of conduct, The use of the property during its ownership, and Reasons for and nature of its disposition. 11 Number and Frequency of Number and Frequency of Transactions Transactions A historical pattern of frequent buying and selling may indicate business activity. For Sale 12 Relation of Transaction to Relation of Transaction to Taxpayers Business Taxpayers Business Property sold is similar to those in the owners trade or occupation. Business Income Treatment. Difficult to establish that the ownership of such property was of a capital nature. 13 Change in Purpose Change in Purpose Acquired and used to provide a long-term benefit now converted into inventory and held for the purpose of resale Sale is Capital in nature until converted ....
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Capital Gains and Losses (Part I) - 1 Capital Gains...

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