Capital Gains- Intro

Capital Gains- Intro - DRAFT TAXATION OF CAPITAL GAINS:...

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Unformatted text preview: DRAFT TAXATION OF CAPITAL GAINS: GENERAL RULES ©F. BARRY GORMAN, PhD, CA, TEP INTRODUCTION A. CAPITAL GAINS VERSUS BUSINESS INCOME 1. Overview 2. Guidance From the Jurisprudence (a) What is the Nature of the Asset? (b) What Was the Intention of the Taxpayer When the Asset was Acquired? (c) Can a Secondary Intent be Inferred? (d) To What Extent Has the Taxpayer Engaged in Value-Enhancing Activity During the Holding Period? (e) What are the Number and Frequency of Transactions? (f) Is There a Connection Between the Transaction and the Taxpayer’s Ordinary Source of Income? (g) To What Use Has the Taxpayer Put the Asset? (h) How Long Has the Asset Been Held? (i) What Do the Company’s Articles of Incorporation Indicate as to its Principal Activities or Sources of Revenue? 3. Guidance From the Canada Revenue Agency B. GENERAL PRINCIPLES 1. Capital Transactions Not Subject to a Separate Tax 2. Capital Gains Reported on a Taxation Year Basis 3. Taxation of Capital Transactions Relevant to Gains or Losses Realized or Incurred After 1971 4. Capital Transactions Taxed on Realization 5. Inclusion Rate for Capital Transactions is 50% of the Gain or Loss 6. Capital Losses Only Deducted Against Capital Gains 7. Capital Properties Accounted for Individually C. DEFINITIONS 1. Capital Gain 2. Taxable Capital Gain 3. Capital Loss 4. Allowable Capital Loss 5. Net Taxable Capital Gain 6. Net Capital Loss D. COMPONENTS OF A CAPITAL GAIN 1. Overview 2. Capital Property 3. Proceeds of Disposition (a) General Rules 1 (b) Deemed Dispositions (c) Dispositions Without Proceeds (d) Exchange Transactions 4. Adjusted Cost Base 5. Costs of Disposal E. SPECIFIC RULES 1. Depreciable Property 2. Superficial Losses 3. Reserves 4. Principal Residence Exemption (a) Not All Gains on a Principal Residence are Tax-Free (b) Computation of Exemption (c) Definition of a Principal Residence (i) The Physical Unit (ii) Surrounding Land (d) Ownership of More Than One Property Per Family Unit (e) Temporary Absences From a Principal Residence (f) Property Used Partly as Principal Residence and Partly for Some Other Use (g) Property Converted From Rental Property to a Principal Residence 5. Personal-Use Property 6. Listed Personal Property 7. Non-Arm’s Length Capital Transactions 8. Lifetime Capital Gains Treatment on Disposition of Canadian Securities 9. Allowable Business Investment Loss F. CAPITAL LOSSES G. CAPITAL GAINS EXEMPTION 1. Overview 2. Calculation of Exemption 3. Cumulative Net Investment Loss Rule 4. Post-1985 Tax Planning 5. 1994 Budget 2 INTRODUCTION The taxation of capital gains was one of the most significant initiatives of tax reform in 1972 , and has remained one of the most important and controversial issues in Canadian taxation. The tax preference accorded capital gains is important in the determination of income flows, and on investment decisions and tax planning....
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This note was uploaded on 01/07/2012 for the course ACCT 4453 taught by Professor Gorman during the Spring '11 term at Dalhousie.

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Capital Gains- Intro - DRAFT TAXATION OF CAPITAL GAINS:...

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