IFITC Chapter_7_2012.ppt

1、Chapter 7,Capital Gains: Personal,1,Overview of the Taxation of Capital Gains,History,2,Capital Property,3,Terminology,4,Terminology,Dispositions Any transaction entitling a taxpayer to proceeds of disposition Deemed dispositions: On change in use of property On death of a taxpayer By way of gift du

2、ring the lifetime of a taxpayer When taxpayer ceases to be a resident of Canada,5,Terminology,6,General Rules,Capital Gain/ (Capital loss),=,Proceeds of Disposition,-,ACB +,Expenses of Disposition,7,Specific Provisions,Personal-Use Property (PUP) Property used primarily for personal use or enjoyment

3、 Gains: Subject to tax Losses: May not be deducted Taxpayers cost deemed to be greater of: ACB of the property $1,000 Taxpayers proceeds deemed to be greater of: Actual proceeds $1,000,8,Specific Provisions,Listed Personal Property (LPP) Special subset of PUP Capital losses can be used but only to e

4、xtent of LPP gains Carryover (three years back and seven years forward) only against LPP gains (applied under Div. B not Div. C),9,Specific Provisions,Listed Personal Property (LPP) LPP includes PUP that is a (sec. 54): Print, etching, drawing, painting, sculpture, or other similar work of art; Jewe

5、llery; Rare folio, rare manuscript, or rare book; Stamp; or Coin.,10,Principal Residence Exemption,Gain on principal residences can be exempted Taxpayer must designate home as “principal residence” for specific years Any residence may be a principal residence as long as taxpayer ordinarily inhabits

6、the home, even for a short time Only one residence can be designated for a given year,11,Principal Residence Exemption,Steps to follow: Calculate the capital gain per year for each principal residence. Determine if any of the years of ownership have been allocated to previous principal residences. A

7、llocate the years available to each residence to optimize the exemption. Determine exemption using the simplified formula:,1 + # of years designated # of years owned, gain,12,Change in Use of a Principal Residence,Change from personal use to income-producing or from income-producing to personal use

8、May designate home as principal residence for up to four years Modified principal residence exemption formula:,1 + # of years designated after the later of Dec. 31, 1971 and the date it was last acquired # of years during which the property was owned after the later of Dec. 31, 1971 and the date on

9、which it was last acquired, gain,13,Change in Use of a Principal Residence,Interpretation Bulletin IT-120R6 Section 54.1 Extended designation Ssec. 40(4) Transfer between spouses Single-ownership situations Joint ownership situations,14,Capital Losses,Allowable capital loss only deductible against t

10、axable capital gain, and taxable net gains from listed personal property, to the extent need to bring those gains to zero Carryovers: Carried back three years Carried forward indefinitely,15,Pooling of AssetsPurchased after 1971,“Floating weighted-average method” for identical assets Certain securit

11、ies are exempt from cost-average rule by deeming such securities not to be identical to any other securities acquired by the taxpayer and include: Securities acquired under an employee option agreement Employer shares received by an employee as part of a lump-sum payment on withdrawing from DPSP,16,

12、Disposition of Shares Acquired under a Stock Option,Disposition of newly acquired securities Taxpayer is allowed to designate the particular security being disposed of if: Security is acquired under an employee stock option agreement Disposition occurs no later than 30 days after the taxpayer acquir

13、es the particular security No other acquisitions or dispositions of identical securities in the intervening period Taxpayer makes the designation in the tax return that is filed for the year in which the designation occurs Taxpayer does not designate the particular security in connection with the di

14、sposition of any other security,17,Disposition of Shares Acquired Under a Stock Option,ACB of shares acquired under a stock option Employment benefit that taxpayer is deemed to have received is added to the ACB Employment benefit included in ACB from the time of acquisition until taxpayer disposes o

15、f the security,18,Cost of Certain Properties,General considerations Dividends in kind Stock dividends,19,Superficial Losses,Taxpayer denied loss at the time of disposition but can add the superficial loss to the ACB of substituted property Superficial loss occurs when: Taxpayer or “affiliated person

16、” disposes of property; Taxpayer or affiliated person acquires or reacquires the same or identical property during the period beginning 30 days before the disposition and ending 30 days after the disposition; and Taxpayer or affiliated person, at the end of the period above, still owns at least some

17、 of the property.,20,Options (Exhibit 7-1),21,Convertible Properties,Conversion is deemed not to have been a disposition of property ACB of shares = ACB of convertible property No cash consideration can be received,22,Capital Gains Deferral,Individuals can defer recognition of capital on certain sma

18、ll business investments Must use proceeds from the sale of small business investment to acquire other small business investments Deferred gain reduces ACB of new investment,23,Non-Arms Length Transfers,Non-arms length rules prevent tax avoidance in certain transactions Who does not deal at arms leng

19、th? Related persons A beneficiary, or anyone not dealing at arms length with the beneficiary, and the inter vivos or testamentary trust It is a question of fact,24,Non-Arms Length Transactions Rules(Exhibit 7-2),25,Attribution Rules,Capital gains on spousal transfers or loans Attributed back to the

20、transferor spouse or common-law partner,26,Transfers or Loans of Property to Spouse/Common-law Partner,27,Transfers or Loans of Property to Spouse/Common-Law Partner,28,Avoiding Income Attribution on Transferred Property,Subsection 74.5(1) FMV Transfer FMV consideration must be received by the vendo

21、r. If part of the consideration is debt, then interest must be charge at the prescribed rate and always paid by January 30 of the following year. If it is a transfer to a spouse/common-law partner, then they must elect out of the interspousal transfer. Subsection 74.5(3) Relationship Breakdown The s

22、pouses/common-law partners are living separate and apart by reason of the breakdown of their relationship.,29,Transfers or Loans of Property to Minors and Other Non-Arms Length Individuals,30,Transfers or Loans of Property to Minors and Other Non-Arms Length Individuals,31,Death of a Taxpayer,Deemed

23、 disposition on death If beneficiary is spouse, deemed disposed at ACB. If beneficiary is someone other than spouse, deemed disposed at FMV.,32,Leaving Canada,When taxpayer ceases to be resident of Canada, all capital property deemed to be disposed at FMV except for: Property that is Canadian property that is not very movable Canadian property that is not very liquid or marketable Property of a business carried on by the individual in Canada. The rig