CTP13_Chapter_11

2014 clarence byrd inc 18 canadian tax principles

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Unformatted text preview: After 10 Years, Reverts To Net Capital Loss Carry Forward Copyright © 2014, Clarence Byrd Inc. 19 Canadian Tax Principles ABILs • Effect Of Lifetime Capital Gains Deduction – Realization Of Business Investment Loss Reduces Ability To Realization Take Advantage Of This Deduction Take – To The Extent That A Deduction Has Been Made Under ITA To 110.6, Equivalent Portion Of Loss Will Be Disallowed (Disallowed = Treated As Ordinary Capital Loss) (Disallowed Copyright © 2014, Clarence Byrd Inc. 20 Canadian Tax Principles Example: ABIL In 2013, John Brown has an ABIL of $66,000, net taxable capital gains of $14,000, and other non-capital sources of income of $20,000. In previous years, he has deducted $22,500 [(1/2)($45,000)] under the lifetime capital gains provisions. ABIL 110.6 In Previous Years Non-Capital Income Unused ABIL (To Non-Capital) Copyright © 2014, Clarence Byrd Inc. $66,000 ( 22,500) $43,500 ( 20,000) $23,500 21 Canadian Tax Principles ABIL Example (Continued) ITA 3(a) ITA 3(b) ($14,000 - $14,000) ITA 3(c) ITA ITA (d) ABIL Net Income $20,000 Nil $20,000 (20,000) Nil Unused ABIL (To Non-Capital) Unused $23,500 Net Capital Losses: Disallowed ABIL (Capital Loss) Current Taxable Capital Gains Net Capital Loss Carry Over $22,500 (14,000) $ 8,500 Copyright © 2014, Clarence Byrd Inc. 22 Canadian Tax Principles Restricted Farm Losses • Arise When: – Reasonable Expectation Of Profit – Not Taxpayer’s Principal Source Of Income Principal (Farming is a subordinate source) (Farming • Restricted Farm Losses – Back 3 Years, Forward 20 Years – Only Against Farm Income • Limit: First $2,500, plus one-half of next $30,000 Limit: Copyright © 2014, Clarence Byrd Inc. 23 Canadian Tax Principles Regular Farm Losses • Regular Farm Losses – Back 3 Years, Forward 20 Years – Against Any Source Of Income Copyright © 2014, Clarence Byrd Inc. 24 Canadian Tax Principles Lifetime Capital Gains Deduction • History – 1985: Introduction of the pprovision – 1992: Removed for rental property – 1994: Removed for all assets except “qualified” farm and 1994: small business property small – 2006: Added qualified fishing property – 2007: Increased limit to $750,000 – 2014: $800,000, plus indexing in subsequent years. Copyright © 2014, Clarence Byrd Inc. 25 Canadian Tax Principles Qualified Property • Small Business Corporation • Farm Property • Fishing Property Copyright © 2014, Clarence Byrd Inc. 26 Canadian Tax Principles The $750,000 Deduction • Small Business Corporation – CCPC – Active Business • Substantially All Assets (90%) • Primarily In Canada (50%) – Includes Shares Of Other SBC Copyright © 2014, Clarence Byrd Inc. 27 Canadian Tax Principles The $750,000 Deduction • Qualified SBC – Small Business Corporation – Held For 24 Months – 50 Percent For 24 Months Copyright © 2014, Clarence Byrd Inc. 28 Canadian Tax Principles Maximum Deduction: Least Of • Unused Portion Of Maximum – Example Ded...
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