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AFM 362 (14)
Lecture 20

AFM 362 Lecture 20: 7

5 Pages
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Department
Accounting & Financial Management
Course Code
AFM 362
Professor
Ken Klassen

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CHAP 7 Capital gains – taxed at 50% (taxable capital gain) Capital loss – taxed at 50% (allowable capital loss) Business investment loss – taxed at 50% (allowable business investment loss) Capital gains exemption - taxed at 50% (capital gains deduction) - Allowable capital losses deducted from taxable K gains. Accounting Term Tax Term Selling price Proceeds of disposition (include lottery winnings) -Cost -Adjusted Cost Base (include any dividends reinvested, and capital gains reinvested*!) -Selling Costs -Expenses of disposition =Profits =Gain/Loss -Exemption/Reserve (if applicable) =Capital Gain/Loss Taxable Capital Gain/loss *Capital gains reinvested are half taxable in the year they are reinvested b/c still a k gain (always half taxable) and they are added to adjusted cost base because it contributes to how much you spent on the stocks in total Exemption or reserve (if applicable) – netted from gain/loss to arrive at capital gain/loss (not principal residence or reserve amounts not due this year) Capital property - Depreciable property - Any other property that would cause capital gain/loss when disposed Personal Use Property - Owned by taxpayer (corporation/trust too) for their benefit - Don’t care about loss (ex. TV), not deductible - buy/sell for more than $1000 (if less, make it $1000) - CAN’T net against LPP losses (DUH!) - Gains at half taxable - No losses (just set to 0) Listed Personal Use Property - Investment nature - Only stuff on the list (NOTHING ELSE) o jewelry o art o coins o rare books o stamps - buy/sell for more than $1000 (if less, make it $1000) - Taxable net gains can be deducted from LLP losses until gains = 0 - carryback 3, forward 7 - Gains NOT half taxable!! Gain on disposing property = POD – (ACB – Expenses of disposition) - Fees are added to ACB Pooling of Identical Assets Weighted Average Cost = total cost/ total shares Shares sold: - find Weighted Average cost - find the taxable Kgain/loss o CAREFUL!!: there can be superficial losses (ie. sold shares and incurred loss, BUT then you purchase shares within 30days) and the absolute value of the total is added back to ACB o If there are no shares left after sale of shares, can’t have superficial loss Stock Dividend: in the year received! (dividend income) Total Taxable dividend = stock taxable dividend + cash taxable dividend (if applicable) - Stock taxable dividend= stock dividend shares *price of each share * gross up - Cash taxable dividend = total shares outstanding * dividend given * gross up (if given dividends for shares) - add in calculating weight average price/shr (Midterm #2 question 2 – part 3) Residences: 1. how many being sold + their years of purchases (to get total number of years owned) 2. proceeds of disposition and ACB to find capital gain 3. capital gain/years owned 4. How to allocate??? (I’ve just been guessing…) - allocate years to the highest K gain/year (try to max out - ie. total gain- exemption= k gain) - allocate to lowest k gain/year for at least one year - allocate the rest of the years to the other property Exemption Formula: (1 + years designated as PR Years owned)/years owned The "1+" allows for full exemption in the case where you sell one home and buy another in the same year. In order to get the "1+" for a particular property, you must allocate at least one year of principal residency to that property. Division B Income Calculation Section 3a) don’t include losses here! put into section 3d! - employment income - property income - business income Section 3b) Net taxable K gains (any negative values are set to 0) - Gains/losses from LPP - gains/losses from shares - gains/losses from PUP 3c = 3a+ 3b Section 3d) - office, employment, business, property losses - ABILs (business investment loss on sale of shares/2) Division B income = 3c + 3d ABILS – capital losses that come from disposing the shares/debts of a small business corporation Because the CCPC is a small business corporation, the loss will be a business investment loss (BIL). At the 50% inclusion rate, this is an allowable business investment loss (ABIL). ABILs are treated as a non-capital loss, and are deductible against any type of income. They are not limited to capital gains. If the ABIL cannot be used in the current year, it can be carried back up to 3 years, or carried forward up to 10 years. A
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