AFM362 Chapter Notes - Chapter 7: Real Estate Transfer Tax
SchoolUniversity of Waterloo
DepartmentAccounting & Financial Management
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Capital Gain: A gain upon sale of a capital property, as determined by:
(1) Proceeds of disposition minus
(2) The aggregate of:
(a) Adjusted cost base, and
(b) Expenses of the disposition
Disposition: Includes any transaction entitling a taxpayer to proceeds.
Proceeds of Disposition: In most cases, proceeds of disposition will be the value of the
consideration received or receivable.
Deemed Dispositions: Result from transfers of property that do not give rise to
actual proceeds. The proceeds of disposition will be deemed to be the FMV of the
property and the time of disposition. Deemed dispositions may result:
- On the change in use of property
- On the death of a taxpayer
- By way of gift during the lifetim e of a taxpayer
- When a taxpayer ceases to be a resident of Canada
Allowable Capital Losses: Can be deducted from taxable capital gains and taxable net
gains from LPP, to the extent need ed to bring those gains to zero and no more. Any
excess losses in the year, referred to as net capital losses, can be carried back three
years or forward indefinitely to reduce taxable capital gains in the applicable taxation
Adjusted Cost Base (ACB): Starts with the actual out-of-pocket cost or deemed cost at
FMV and is then modified.
Expenses of Disposition: Outlays and expenses related to the disposition of property will
reduce the overall gain or increase the overall loss on the disposition, but c annot reduce
other income. Common types of disposition costs include:
- Expenses incurred to renovate the capital property for sale
- Finders’ fees
- Brokers’ fees
- Surveyors’ fees
- Legal fees
- Transfer taxes
- Advertising costs
Categories of Capital Property:
Personal-Use Property (PUP): Property owned by a taxpayer (including a
corporation or trust) for the personal use or enjoyment of the taxpayer or for a person
or beneficiary related to the taxpayer. Several special rules apply:
- Capital gains must be included in income but no capital losses can be deducted.
- For the purpose of calculating the capital gain or loss on any disposal of PUP, the
taxpayer’s cost is deemed to be the greater of the ACB of the property and $1,000.
Similarly, the taxpayer’s proceeds are deemed to be the greater of actual proceeds
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