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Unformatted text preview: 3520-4: 9/14/111-111Lecture 4: Income from Property, Capital gains and Capital Losses1.1Topics CoveredThis week’s lecture looks at the basics of how investments are taxed, i.e. the taxation of interest, dividend and rental income (earned while the investment is held) and the taxation of capital gains and losses (generally earned/realized when an investment is sold)CTP ch. 7 covers property income and expenses, i.e. how dividend income, interest income, rental income and other types of property income are taxed and the expenses that can be deducted against this incomeCTP ch. 8 covers capital gains and losses, i.e. how the gain on the sale of an investment (including your home) is taxed during your lifetimeAs before, urls to background materials are included for those who are interested in additional information1.2Designated problemsExercises 7-3, 7-6 to 7-8, self-study problem 7-3Exercises 8-2, 8-3, 8-21, 8-22 and 8-252Property Income [7-2 to 7-4]passive income from investments (investment income)most interest, dividends, rental income (minus expenses) and some royaltiesIn some cases, a corporation's activity of earning property income can be considered an active business, e.g. a corporation earning investment income because of the number of employees (more than 5 full-time employees throughout the year). Discussed further in ADMS 4562Most of the rules in subdivision b of Division B of Part I of the ITA apply to both income from business and property2.1A few significant differences between business and property income:You cannot create or increase a property loss on a rental property with CCAFor a background note on CCA, see http://www2.parl.gc.ca/Content/LOP/ResearchPublications/prb0606-e.htmYou cannot deduct cumulative eligible capital amount (CECA) and convention expenses against property income (only business income) Attribution rules apply to property income (and capital gains, in the case of spousal loans and transfers) but not business incomeYou cannot deduct home office expenses against property income according to the case lawJason Fleming [[email protected]]3520-4: 9/14/112-112.2Interest Expense [7-5 to 7-9]The general rule allowing the deduction of interest expense is ITA 20(1)(c). The conditions are as follows:The interest expense mustbe pursuant to a legal obligation, e.g. a signed agreementmeet a purpose test = to produce income from business or property (not capital gains)relate to funds directly used for that income-earning activityRead 7-6, 7-8 and 7-9 2.2.1Deemed Interest Expense [ITA 80.5]The deemed interest benefit on employee loans is deemed to be interest paid for purposes of ITA 20(1)(c) and 8(1)(j)220.127.116.11ExamplesThe imputed interest benefit on a loan made to an employee to buy company shares is typically deductible (since the shares (can) earn dividend, i.e., property, income)The interest benefit is reported as employment income. The interest (deemed paid) The interest benefit is reported as employment income....
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This note was uploaded on 01/19/2012 for the course ADMS 3520 taught by Professor S during the Spring '09 term at York University.
- Spring '09