Principles of Taxation Final Notes

Topics: Tax, Taxation, Taxation in the United States Pages: 9 (1768 words) Published: February 23, 2013
Tax Notes:

Capital Gains

Capital property: depreciable property and any other property the disposal of which would result in a capital gain

Capital gains = proceeds – ACB

Taxable capital gain = capital loss and gain are taxed at a rate of ½

Capital losses are denied: depreciable property, personal use property, deemed dispositions (to the extend they exceed capital gains

Disposition of Identical Properties (shares)

Post V day pool (pre 1972) ( real estate property

Median rule: ACB is the middle about of

1) Proceeds of disposition

2) V Day value

3) Cost (FIFO basis)

VDay Method: available only to individual taxpayers ( election must be made accrued gains not taxed

V day method is used, no need to compute average cost of pre VDay property

Superficial Losses

Property is sold at a loss but the property was acquired or reacquired within 30 days from the date of sale by the taxpayer or an affiliated person ( spouse, or corporation controlled by tax payer

The loss is denied and added back to the ACB of the reaquired property

Personal Use property

• Cars, furniture, clothes

• 1000 floor rule to proceeds and acb

• Capital gain is taxed, capital loss denied

Listed Personal Property

• Coins, stamps, jewellery, paintains, drawings, sculptures, and rare books

• 1000 floor rule applies

• Losses can be only applied against gains from LLP

• Can be carried back 3 years and forward 7 years

Reserve on Capital gain is computed as the lesser of:

1) Outstanding proceeds x capital gain
Total proceeds

2) 1/5 of the gain x (4-#preceding years)
At least 20% of the gain is taken into income each year, capital gain is fully recognized no later than the 5th year after the disposition

On the disposition of shares in a QUALIFYING SMALL BUSINESS CORP, a 10 yr deferral is available

Deferred gain is computed as:

CG x lesser of: 1) cost of replacement shares or 2) proceeds of disposition
Proceeds of Disposition
ACB of reinvested shares: amount reinvested – deferred gain = shares of new company

Principal Residence
If you have more than 1 residence, when allocated years of designation to determine exempt portion of gain consider: which property has the greatest accrued gain and time from for disposition

Exempt portion of the gain is computed as:
1 + # of years of designation x CG
# of years owned ( the +1 factor takes care of the year a residence is sold and another purchased, since you can only designate one principal residence per year

Non Arms Length Transfers/Sales ( Attribution Rules

For Non-Depreciable Property S69

TransferVendor Purchaser
Greater than FMVNo adj. to proceeds ACB = FMV
Less than FMVProceeds = FMVACB = $ Paid
GIFT Proceeds = FMVACB = FMV

Spousal transfers ( when a spouse transfers property to the other spouse, the transferor is deemed to have disposed of the property at: 1) Its ACB for non-depreciable property
2) Its UCC for dep. Property is the asset is one of many assets in the class than the Deemed Proceeds of Disposition is computed as: UCC of class x FMV of asset transferred
FVM of all assets in the class
** if the transferor did not elect of of S73(1), it is not considered a sale, there are not capital gains Transferee: ACB or UCC will flow through the transferee unless transferor receives FMV and elects out of S73(1)

Tax Consequences if the taxpayer elects out of S73(1)
1) If the taxpayer receives FMV consideration:
• This would be considered an actual disposition, reported as capital gain realized at date of transfer • Any capital gain realized when the disposition takes place is not attributed back, nor is any income • If debt is taken back as consideration, it must bear interest at the prescribed rate and interest...
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