Capital Gains

Question 1

What are capital gains (how are they taxed?)

Answer 1

Gains or losses on the sale (disposition) of capital (land, buildings)

1/2 of a capital gain is included in income

1/2 of a capital loss is deductible

Question 2

Capital vs Income

Answer 2

Capital is “not ordinary income” ex. shares - usually sale yields a capital gain

Question 3

Income v Capital Gain Case Law

Answer 3

Californian Copper Syndicate - s 248 one single can constitute a business. Intention to buy and sell something then it is a business

Regal Heights - secondary intention doctrine, at the time of purchase were they speculating the sale and profit off the land? If there was intention to profit off the land, even a secondary one, it would mean that it was business income.

Irrigation Industries - secondary intention… does the person deal with the property purchased by him in the same way a dealer would ordinarily do.

Taylor - lead production company. Bought for immediate resale, not an investment and therefore determined income.

Question 4

Capital Gains (Losses Framwork/formula)

Answer 4

POD-ACB (s 40(1)(a) and (b)

Capital gains = what you sold it for - what you bought it for

NOTE: Capital losses are only deductible from capital gains (NOT INCOME S 3)

Question 5

Adjusted Cost Base (Section & what it means)

Answer 5

S 54

Include cost of acquiring property and capital improvements

Adjustments s 53

Question 6

Disposition & Proceeds of Disposition (Section)

Answer 6

Section 248 & 54

Disposition is the taxable portion of capital gains. Sale, expropriation, non-cash consideration, property in trade… etc.

Question 7

Deemed Disposition (what are they & applicable section)

Answer 7

When you are deemed to have sold something (even if you haven’t actually) and thus are taxable on the capital gains.

Change of use of property (S 45)

Death of taxpayer (S 70(5))

Change of residency (S 128.1(4)(b)

Part disposition (S 43(1)

Rollover for Reinvestment in Replacement (S 44)

Question 8

Personal Use Property (Section, rule that applies, listed personal property)

Answer 8

Capital gains on personal use property must be recognized subject to the de minimus rule (S 46(1).

No losses on personal use property (S 40(2)(g)(iii)

Exception to listed personal property can create loss (S 54 & 3(b).

Question 9

Special Loss Rules (section, what it means)

Answer 9

S 46(1)

Capital gains on personal use property must be recognized; subject to de minimus rule.

Section 46(1) deems ACB and POD to be greater of $1000 or actual amount

Question 10

Intra-Family Transfers (rollover, gift for less than FMV, spousal transfer, principle residence)

Answer 10

Rollovers: Property transfers at adjusted cost base of transferor, tax deferred until property is disposed of.

Gifts or sales for less than FMV: Section 69(1) for tax purposes gifts are a disposition.

Spousal transfers - rollovers are automatic under s 73(1)

Principle residence - generally, capital gains are not taxable (s 54)

Question 11

Rollovers (spousal - section? What is it?)

Answer 11

When you rollover you give it to someone or something without triggering a disposition (taxable capital)

Between live spouses (S 73(1))

Value rolls over at the ACB you got it for, and suspends triggering the payment of capital gains.

Death of spouse S 70(6)

Transfers to company S 85(1)

Question 12

Principle residence (Section, what is it)

Answer 12

Exemption for some of capital gains derived from sale of “principle residence”

Section 54

Must ordinarily inhabit the residence
Must own the residence
Must designate the residence as principle residence