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Part IV
Less:
Allowable capital losses –
1
Less: Allowable business investment losses (–) – +
+
__________________________________
1 The amount at 3(b) cannot be negative; if the allowable capital losses are greater
that the taxable capital gains, the amount at 3(b) is nil but the difference is
known as "net capital losses".
2 The amount after 3(d) cannot be negative; if the amount after 3(c) is greater than
the total amounts after 3(d), the amount is the taxpayer's net income; if the
amount after 3(c) is less than the total amounts under 3(d), the net income is 0
and the difference is a notional "non-capital loss".
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Definition of Spouse
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• Person of the opposite sex who cohabits at that time with the taxpayer in a conjugal
relationship and
Age Limit
• RRSP must be disposed of by the end of the year the annuitant turns age 71;
• The contributor can be over age 71 if the contribution is to a spousal plan
and the spouse has not turned age 71 in the year.
PLUS:
• lesser of:
• Started in 1991
• Indefinite carry-forward
• Annual limit minus actual contributions
• Can deduct balance in any year.
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2008 $20,000
2009 $ 21,000
2010 $22,000
2011 Indexed
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• Office or employment
• Business income (loss)
• Rental of real property – income (loss)
• Royalties in respect of a work or invention
• Alimony or maintenance received (paid)
• Supplementary unemployment insurance benefit plan
• Research grants
• CPP/QPP disability benefits for previous years.
$2,000 Over-contribution
Retiring Allowance
• defined in 248(1)
on or after retirement from employment in recognition of
long service
on loss of office even if damages awarded by the courts
• Rollover
$2,000 x pre ’96 years during which employed
plus $1,500 x pre ’89 years not vested.
i.e. for the years the
employee was a member of a
Direct Transfer Pension Plan but the
Employer contribution had
• From DPSP, RPP directly to RRSP not vested to the employee
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Moving expenses
•moving expenses are deductible to the extent that the following conditions are
met:
they must not have been paid on a taxpayer's behalf in respect of (in the
course of or because of) the taxpayer's office or employment (para 62(1)(a));
they were not deductible under section 62 in the preceding taxation year (para
62(1)(b)) (expenses that could not be deducted in the year of the relocation may
be deducted in the following taxation year, subject to the income limitations in
paragraph 62(1)(c));
the total amount claimed may
not exceed the taxpayer's employment (or business) income for the year at the
new work location; and
• all related reimbursements and
allowances received by the taxpayer must be included in computing the
taxpayer's income (para 62(1)(d)).
travel costs for the taxpayer and members of the taxpayer's household (para
62(3)(a));
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cost of meals and lodging near either residence, for up to 15 days, for the
family members (no S.67.1 limitation); (62(3)(c))
cost of cancelling the lease, if any, for the old residence (para 62(3)(d));
if the old residence is sold, legal expenses in respect of the purchase of the
new residence, and taxes, fees or duties imposed on the transfer or registration
of title to the new residence (other than any GST or VAT) (para 62(3)(f));
interest, property taxes, insurance premiums and the cost of heating and
utilities, to a maximum of $5,000, for the old residence left vacant and not
rented out to any other person and incurred for a period during which
reasonable efforts are made to sell the old residence (para 62(3)(g));
the cost of revising legal documents to reflect the taxpayer's new address,
replacing drivers' licenses and non-commercial vehicle permits, and obtaining
utility connections and disconnections (para 62(3)(h)).
• Ss 62(3) state that moving expenses do not include costs (other than those
referred to in paragraph 62(3)(f)) incurred by the taxpayer in respect of the
acquisition of the new residence. Thus, for example, house-hunting expenses
would not be deductible as moving expenses.
Lower income spouse may claim the deduction with some exceptions;
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Section 64 provides tax relief for an individual with a severe and prolonged mental or
physical impairment who must pay an attendant for care in order to be able to perform
the duties of an office or employment, carry on a business, or carry on research or
similar work for which a grant was received.
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Individuals Corporations
Employee stock option Donations
Home relocation loan Loss carry-over
Loss carry-over Dividends
Capital gain deduction
Northern allowance
DIVISION C DEDUCTIONS
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Note: Net capital losses are stated using the inclusion rate
In the year they were incurred
Up to 1987: 50%
1988 & 1989: 66 2/3 %
1990 to Feb. 27, 2000: 75%
Feb. 28,2000 to October 17, 2000: 66 2/3%
October 18, 2000 and later: 50%
100 % 50%
Capital gain Taxable capital gain
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Gains on sale of QFP are eligible for the $750,000 C/G Exemption;
QFP includes real property used by the taxpayer or members of the taxpayer's family in
the course of carrying on the business of farming in Canada.
QFP also includes shares of a family farm corporation and interests in family farm
partnerships or trusts, and eligible capital property such as farm quotas.
Property acquired after June 17, 1987 must have been owned throughout the 24 months
preceding its disposition and the gross revenue from the farming business must, in at
least 2 years during the period of ownership, have exceeded the individual's income
from all other sources.
Where the farm is owned by a corporation or partnership, the gross revenue test is
inapplicable. However, the shareholder or partner must have been actively engaged in
the farming business on a regular and continuous basis during the 24-month period.
Farm property acquired before June 18,1987 is exempt from the gross revenue test and
will qualify if it is used to "carry on the business of farming" in the year of disposition or
for at least 5 years during the period of ownership.
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A capital gain realized on the disposition of QSBC shares may be eligible for the
$750,000 Capital Gains Exemption ($375,000 CGD) if certain conditions are met.
Single corporation
1º Test: Small Business Corporation test (SBC) at the determination time (i.e. sale
or disposition)
The shares must be shares of a SBC i.e. shares of a corporation which is a CCPC where
all or substantially all (90%) of the FMV of the assets are at that time:
• Throughout the 24 months preceding the disposition, the shares must not be owned
by anyone other than the individual, or a person or partnership related to the individual.
Throughout the required 24-month period preceding the disposition, the shares were
shares of a CCPC for which more than 50% of the FMV of its assets were used
principally (50%) in an active business carried on primarily in Canada by the
corporation or related corporation.
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The 3º test (basic asset test) is modified whenever shares of OPCO are held through a
holding company (HOLDCO) that qualifies as SBC.
If HOLDCO (corporation to be sold) can meet the 50% basic active business asset test
with its own active business assets, its shares will meet the asset test.
Where the active business assets of HOLDCO are 50% or less, then the parent
corporation may still qualify by including shares and indebtedness of corporations
connected with it (i.e. of OPCO)
If the particular corporation (HOLDCO) does not meet the 50% active asset test without
including shares or indebtedness of connected corporations, these connected
corporations are required to meet additional tests.
1º If Holdco meets the 90% test throughout the 24 months ending at the determination
time with a combination of its own active business assets and shares and debts of a
connected corporation,
⇒ the connected corporation (OPCO) need only meet the 50% test on its assets.
2º If the HOLDCO does not meet the 90% test for any period of time in the 24 months
ending at the determination time,
⇒ HOLDCO must meet the 50% test with a combination of its own active business
assets and shares and debts of a connected corporation,
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SUMMARY:
Purification
Assume Mr. X owns all the shares of OPCO. The following has been the situation for
OPCO for the last 24 months:
Purification technique
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a. the total of the individual's investment expense for the year or a preceding taxation
year ending after 1987
less
b. the total of the individual's investment income for the year or a preceding taxation
ending after 1987.
A CNIL will in fact reduce the availability of the C/G deduction; therefore planning
should be undertaken to minimize the CNIL.
Only capital gains realized by individuals are eligible for rollover relief.
To improve access to capital for small businesses with high growth potential, section
44.1 permits individuals to defer limited amounts of capital gains on eligible small
business investments to the extent that the proceeds are reinvested in another eligible
small business investment.
The rollover is available on the first $2,000,000 invested in an eligible small business,
which can have no more than $50 million immediately after the investment. The
investment must be in newly issued treasury shares.
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• If minimum tax is higher, then can recover over the next seven years
= Minimum tax
When AMT is calculated, net income and taxable income is revised to exclude certain
tax preference items (you add these items back) to the extent they exceed a base
amount of $40,000.
The entire revised taxable income is then subject to a federal tax rate of 15%.
If revised federal tax is greater than the normal federal tax, the former applies.
CONSIDER 80% of the excess capital gains over capital losses for the year
instead of 50%
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CONSIDER 2/5 of the employee stock options deductions (i.e. 2/5 x 50% = 20%,
net=80%, just like the capital gain inclusion)
Only the following basic tax credits are allowed to the individual:
AMT does not apply unless the federal tax calculation is greater than the normal
federal tax;
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MISCELLANEOUS CONCEPTS
DISPOSAL OF PROPERTY TO A MINOR
Transferor Transferee
PROCEEDS COST
Gift 73(1) =Transferor’s =Transferor’s
Automatic rollover ACB/UCC ACB/UCC
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Exception 74.5(1)
LOANS - SPOUSE
LOANS – MINOR
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DEATH OF A TAXPAYER
Capital losses
Ss 111(2) modifies the calculation of the individual’s taxable income for the
year of death and the immediately preceding year for purposes of applying net
capital losses.
All unused net capital losses (net of amount of net capital losses used to offset
current year’s taxable capital gains) arising in years up to and including the year
of death may be used to the extent needed to offset any taxable income for the
year of death and the immediately preceding year.
Donations
The legal representative of the deceased may claim the tax credit for charitable
donations up to 100% of net income of the deceased.
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• Definition: amounts which are receivable at the date of death but have not been
received. examples:
Matured, uncashed coupons;
Declared but unpaid dividends;
Unpaid salary, commissions if pertaining to pay periods completed before date of
death.
Where the business of the deceased taxpayer has an off-calendar fiscal period,
(i.e. the alternative method was used) and the death occurred in the year after
the fiscal year of the business;
The income from the end of the fiscal period to date of death can be reported
on a separate return, if the legal representatives so elect.
• Must file return and include income earned since date of death;
• Testamentary trusts are taxed at gradual rates;
• Fiscal period ends within 12 months from death;
• Tax and tax return due 90 days after year end.
Personal Credits under S 118, except pension credit, can be claimed on all returns
except on the Trust return;
Pension credit must be claimed on return on which the related income is reported;
Personal credits:
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