AFM362 Lecture Notes - Lecture 15: Mutual Fund, Investment, Weighted Arithmetic Mean

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lilacmouse857

29 Jun 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM362

Professor

Betty Xing

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A stamp or coin

○

This is a PUP but gets blessed with the principal residence exemption

special reduction against

this type of capital gain on disposition

•

Owned by the taxpayer either by himself or jointly; and

○

Ordinarily inhabited by the taxpayer, the taxpayer's spouse or former spouse, or the

taxpayer's child at any time in the year

○

A principal residence is defined as virtually any housing unit or right to such a unit:

•

Even if owned for less than 365 days in the year counts as a full year of ownership

•

Also, a seasonal residence such as a cottage, can be considered to be ordinarily inhabited

•

To be a principal residence, the property must be designated as such in the year of disposal

•

If exceed this limit, must prove it was necessary for the taxpayer to enjoy to be eligible for

exemption

○

This exemption applies also to the one

half hectare of subjacent and adjacent land

•

(1+ number of years designated) / number of years owned x gain

○

Only one housing unit can be designated per family unit

○

The years referred to is after 1971

○

The taxpayer must be resident in Canada for tax purposes

○

An individual who purchased a home before becoming a resident of Canada is not entitled

to use the "1+" for that property

○

Formula for determining the exemption portion of a capital gain on the disposition or deemed

disposition of a principal residence is:

•

The "1+" is intended to protect one housing unit in a situation where a family sells one house and

buys another in the same year. In that case, the family owns two houses in the year, but can only

designate one as the principal residence for that year.

•

The minimum numerator will be 1+1, at least one year is designated as the principal residence

•

Principal residence exemption

Although the regulation require that a designation form be filed with the tax return in the year of

the disposition, the CRA does not require this form to be filed unless there is a taxable capital gain

after applying the exempt portion according to the designation rules

•

More than one principal residence

We use the "floating weighted average method"

•

aggregate of the costs of the identical properties/# of such identical properties

○

For stock transactions, its calculated by:

•

Aggregate of the cost of the identical properties

○

(Principal amounts of all identical properties/principal amount of the property disposed of)

For bonds, debentures, notes, etc.

•

Investors must include in their income for tax purposes the amount of net investment

income such as interest and dividends and net taxable capital gains paid or payable to them

in the year

○

Whether or not actually distributed, these amounts can be added to the ACB of the

investor's units in the fund.



Interest income: full amount increase the ACB of mutual fund

□

Capital gains: while only 50% of the capital gain is included in the taxpayer's

income, the ACB of the mutual funds would be adjusted for the full capital gain

(100%)

□

Dividends: the adjustment amount would be the actual dividend, not the

□

It's important to note that the adjustments made to the ACB, which are listed below,

depend on the type of income allocated to the taxpayer



Often income to investor is reinvested in the fund.

○

For shares or units of mutual funds

•

Pooling of identical assets

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Document Summary

This is a pup but gets blessed with the principal residence exemption - special reduction against this type of capital gain on disposition. A principal residence is defined as virtually any housing unit or right to such a unit: Owned by the taxpayer either by himself or jointly; and. Ordinarily inhabited by the taxpayer, the taxpayer"s spouse or former spouse, or the taxpayer"s child at any time in the year. Even if owned for less than 365 days in the year counts as a full year of ownership. Also, a seasonal residence such as a cottage, can be considered to be ordinarily inhabited. To be a principal residence, the property must be designated as such in the year of disposal. This exemption applies also to the one-half hectare of subjacent and adjacent land. If exceed this limit, must prove it was necessary for the taxpayer to enjoy to be eligible for exemption.

Related Questions

Domicile plays a central role in state taxation by providing the required nexus for a state to subject all of the income of an individual to its state income tax. Including an individual state gift, inheritance, and estate taxes at the place location time of the award or death. The article enhances understanding the governing principles that apply in determining an individualâs place of residence and the state to subject income tax.

The governing principles state that an individual can only have one resident at a time and not two, and physically moving from one doesn't terminate it as a legal domicile. To end one's place of residence, an individual must acquire a new site and intend to abandon the old one. The individual must have a real fixed permanent home and a principal establishment to the place such that whenever absent, he has the intentions of returning to the residence.

Impact arise in three cases, one where the taxpayer works at a different state and visits the family regularly at final state, the Tax Commission ruled that where he was employed was not a permanent place. Hence the taxpayer was domiciliary termed an Idaho since he owned Idaho driving license and had no indication that he intended to abandon Idaho residence. Second is the Georgia case where the taxpayer moved with her spouse and children and purchased a house in Georgia. Later moved to work in the United Kingdom Embassy but they stayed at the Embassy apartment in 2011, hence they were subjected to Georgia state income taxation. Similar to the third case where the taxpayer worked in Texas and stayed in Georgia but continuously referred Rhode Island home. Hence he became a domiciled at Rhode since it was back.

The author thou questioned Fowlerâs case since the court drew analysis based on their unsuccessful attempt to obtain Florida driverâs license, register the car, register as Florida voter and their intention of being Florida residence as from January 20, 2006. It failed to attribute the sale of stock on February 3, 2006, where Mrs. Fowler served as Assistant Secretary for three years in North Carolina. The charitable contributions after the sale of the business in 2006 and during that year, the taxpayers spent most of 2006 - 2007 days in North Carolina before finalizing the proposal.

The court and IRS'S brings out the contradiction in the governing principles of determining an individual's domicile. Since thou, the Fowlers changed their address to Florida they continued using certain correspondence and billing and bank statements from North Carolina. The insurance policy that they purchased on their North Carolina home for a period of July 31, 2006 to July 31, 2007 had a stipulated location that dwelling is not seasonal or secondary. The court failed to consider Fowlers' behavior prior to January 20,2006 and emphasized on a single observed event, hence ignoring taxpayersâ subsequent conduct.

QUESTION: INTERPRETATE THE ABOVE ARTICLE IN YOUR OWN WORDS.

QUESTION 7

Multiple Answer

If you are unable to reach a settlement with the IRS prior to trial, you'll want to be prepared for the trial. There are certain steps required and/or recommended. Select all of the items that apply:

Be sure that your witnesses are available on the trial date.

hold back on supplying documentation to the IRS attorney as it's better to bring this up at trial.

Enter into a stipulation of facts which will be submitted to the court. This will help to narrow the scope of the disagreement.

Know where the tax court will be held and be sure to arrive before the scheduled time so you are present for the trial calendar call.

QUESTION 8

T/F

If you had an opportunity to settle the case with the Appeals Officer in docketed status (after you filed the petition), the attorney for the IRS cannot offer to settle the case with you before trial.

True

False

QUESTION 9

Identify all of the answers that are correct with respect to the notice of deficiency, also known as the statutory notice of deficiency (SND) for short.

When a taxpayer receives a SND he/she has 90 days from the date designated on the SND to file a petition with the Tax Court.

A valid statutory notice of deficiency SND, must identify the taxpayer and the tax year(s) involved, indicate that a deficiency has been determined, and specify the amount of the deficiency.

the commissioner's SND is afforded the "presumption of correctness"

If respondent raises any new matter, increases the deficiency, or affirmative defenses, in its answer to the petition, then the burden of proof is upon the respondent with respect to such matters.

QUESTION 10

In Nicholson v. Comm., TC Memo 1993-183 the court found that where the theory advanced by respondent in her notice of deficiency is broadly worded, respondent is at liberty to advance in her answer (or amended answer) any argument consistent with that broad theory, without assuming the burden of proof under the new matter doctrine, citing Sparngler v. Comm., 32 T.C. 782, 793 (1959), affd, 278 F.2d 665 (4th Cir. 1960).

True

False

AFM362 Lecture Notes - Lecture 15: Mutual Fund, Investment, Weighted Arithmetic Mean

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