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Chapter 8

BUS 329 Chapter Notes - Chapter 8: Capital Gain, Capital Asset, Capital Cost

Business Administration
Course Code
BUS 329
Susan Bubra

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Chapter 8
Capital Gains and Capital Losses
Capital Gains
- Results from disposition of capital asset
o Redemption
o Expiry
o Cancellation
May have both capital gains or losses
o Sale
o Conversion
o Transfers to trusts
o Expropriation tear down an old building
o Gifts
o Various deemed (ex. change in use)
- Election on Canadian securities ITA 39(4)
o Allows to have all Canadian securities be treated as capital property
Proceeds of Disposition (POD)
- Sale and redemption proceeds
- Insurance proceeds when the building was burnt down
- Expropriation proceeds
- Various deemed products (ex. fair market value on change in use)
Adjusted Cost Base (ACB)
- Depreciable assets equal to capital cost
- Non depreciable assets is cost, adjusted for ITA 53
- Superficial losses ITA 54
o Sales combined with acquisition
o If you sell the shares within 30 days of purchases, it is considered a superficial loss
o Example securities with an adjusted cost base of $15,000 are sold for $10,000. Identical
securities are purchased for $8,000.
POD $10,000
ACB (15,000)
Disallowed loss ITA 40(2)(g)(i) (5,000)
Under ITA 53(1)(f), new ACB is   
The loss will not be allowed if you repurchase it within 30 days
- Stock option benefit
o Employment benefit included in income
o Added to the ACB of the shares
o Can average out the cost of the shares
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- Negative amounts ITA 40(3)
o Added to income (capital gain)
o Restore ACB to nil balance
o Not applicable to most partnership interests
Proceeds of Disposition
Adjusted Cost Base
Costs of Disposition
Capital gain (100%)
Inclusion rate
Taxable capital gain
Detailed Applications
- Partial dispositions
o Selling partial land
o Allocate ACB on a reasonable basis
o Land on acres, unless other factors
- Capital gains reserves
o All of the POD will not be received in cash in the year of disposition
o Will also not recognized as accounts receivable
o Limitation ITA 40(1)(a)(iii)
Lesser of
o Example
An asset with an ACB of $350,000 is sold for $550,000. At the time of sale, $150,000 is
received in cash with the remainder due the following year
Maximum reserve is the lesser of
 
 
- Bad debts
o On receivable related to the sale of capital assets, which included in capital gains
o Write-off is treated as a capital loss
Detailed Provisions
- Sales of real property
o Problem
Terminal loss on building is 100% deductible
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