Capital Gains and Losses (Part I)

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

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1 Capital Gains & Capital Gains & Losses Losses
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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
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3 Taxable Capital Gains Taxable Capital Gains Inclusion Rate Pre -1971 0 1972 – 1987 1/2 1988 – 1989 2/3 1990 - 1999 3/4 2000 (see next slide) 2001-present 1/2
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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
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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.
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6 Capital vs. Business Income Capital vs. Business Income Intent resale for profit Business Treatment Intent long-term Benefit Capital Treatment
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7 Intention Example Intention Example Deliveries Sale is Capital Resell to Sale is Truckers Business 50% 100%
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8 Intention Intention Four factors in establishing the taxpayer’s primary intention: 1. Period of ownership. 2. Nature of the transaction. 3. Number and frequency of the transactions. 4. Relation of transaction to taxpayer’s business.
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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
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10 Nature of the Transaction Nature of the Transaction Examine: Entity’s course of conduct, The use of the property during its ownership, and Reasons for and nature of its disposition.
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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
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12 Relation of Transaction to Relation of Transaction to Taxpayer’s Business Taxpayer’s Business Property sold is similar to those in the owner’s trade or occupation. Business Income Treatment. Difficult to establish that the ownership of such property was of a capital nature.
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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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