Chapter 08

Chapter 08 - Chapter Eight CHAPTER 8 GAINS AND LOSSES ON...

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Chapter Eight CHAPTER 8 GAINS AND LOSSES ON THE DISPOSITION OF CAPITAL PROPERTY SOLUTIONS TO REVIEW QUESTIONS 1. Property acquired for the purpose of providing the owner with a long-term or enduring benefit is classified as capital property. For tax purposes, it can be distinguished from two other types of property: inventory and eligible capital property. Property acquired for the purpose of reselling it at a profit is inventory, and any gain or loss realized is business income (loss). Certain types of capital properties that are acquired for the purpose of providing a long-term benefit are, however, classified as eligible capital property and do not receive normal capital gains treatment for tax purposes. As discussed in Chapter 6, eligible capital property includes property of an intangible nature that does not have a defined legal life (goodwill, franchises and licences with an unlimited life, customer lists, incorporation costs, and so on). Gains or losses from eligible capital property are considered to be business income (loss) [S.54 definition of capital property ].. 2. It is not necessary for property to actually provide a long-term benefit to its owner, but rather the intended purpose of acquisition must be to provide such a benefit. Whether or not property actually achieves its intended purpose is governed by future events which may or may not be controllable by the owner. 3. A taxpayer's intended purpose in acquiring a property is not always clear, and yet it is necessary for the tax authorities to assess such transactions. The following factors are considered when judging intended purpose: period of ownership. nature of the transaction, including the point of purchase, use of the property during the ownership period, and the reasons for and the method of the disposition. number and frequency of transactions. relation of the transaction to the taxpayer's business. By examining all of the above factors together, a course of conduct may be apparent which supports the intended purpose. 4. Sale of entire property to an investor - based on the limited information, it would appear that the selling price in excess of the original cost would be a capital gain. The property was held for a long period of time and generated regular annual benefits. As there is no indication of a history of buying and selling such properties, the intended purpose of acquisition as a capital property appears to be supported. Sale of property by separate condominium units - The selling process under this alternative requires significant effort by the vendor and therefore becomes a 1
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Chapter Eight factor in assessing the original intention. Three possible results may occur. Because the method of sale is similar to that used by developers, it provides
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This note was uploaded on 09/21/2011 for the course ACC 522 taught by Professor A.vena during the Fall '11 term at Ryerson.

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Chapter 08 - Chapter Eight CHAPTER 8 GAINS AND LOSSES ON...

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