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ADMS 3520 (42)
Chapter 7

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Administrative Studies
ADMS 3520
Thaddeus Hwong

Chapter 7 Capital Gains  defined as gains on disposal of capital property (assets)  capital assets are assets which are capable of earning income in the form of business profits, interest, dividends, rents or royalties Special Rules  Assets purchased before 1972  Assets purchases after 1971  Principal Residence  Personal Use Property  Listed Personal Property  Capital Gain Reserves Taxable Capital Gains is calculated as: Proceeds of Sale - Cost of asset sold = Capital Gain Taxable Capital Gain = 50% of Capital Gain ___________________________________________________ Allowable Capital Losses = 50% of Capital Loss  these can be applied against taxable capital gains Asset purchased before 1972  there was no capital gains tax before 1972  all assets owned at December 31, 1971 are valued at that date. This is called their V-day value.  for the sale of assets owned at December 31, 1971, there are two methods to calculate the capital gain. These are the median rule and the V-day valuation method. Median Rule  ACB of the asset sold is the middle value between cost, V-day value and proceeds. V-day Valuation Method  ACB of asset sold is the V-day value of the asset. Sale of Shares – after 1971 purchases Identical Properties :Cost of shares disposed of is determined by the weighted average cost method as follows: Royal Bank shares Date Purchased 1996 1000 shares @ $50 1998 900 shares @ $54 1999 1100 shares @ $55 Calculation of cost: 1000 x $50 = 50,000 ACB = 159,100 900 x $54 = 48,600 3,000 1100 x $55 = 60,500 3000 shares 159,100 = $53.03 Royal Bank shares  1200 shares sold in 2004 for $71/share Capital Gain Proceeds 1200 x $71 = 85,200 ACB 1200 x $53.03 = 63,636 Capital Gain 21,564 Taxable Capital Gain = 50% x 21,564 = 10,784 ACB of remaining shares 1800 @ $53.03 = $95,454 Principal Residence  definition  any accommodation which is ordinarily inhabited in the year by the taxpayer, a spouse, or former spouse, or a dependent child.  the property must be designated by the taxpayer as his principal residence.  Principal residences are exempt from Capital Gains Tax. Personal Use Property Losses: These are not deductible Listed Personal Property Losses  deductible only against LLP gains  can carry back 3 years, or forward for 7 years Listed Personal Property: is a personal use property which is one of: (i) print, painting, work of art (ii) jewelry (iii) rare books or manuscripts (iv) stamps or coins  follow same tax rules as personal use property ($1,000 rule applies)  except LPP losses are deductible against LPP gains Capital Gain Reserve:  this is the amount which is not taxable because all the proceeds of a capital gain were not received when the asset is sold. Calculation of Capital Gain Reserve Mortgage Receivable x Gain Proceeds Maximum Reserve Allowed Year 1 = 80% of Gain Year 2 = 60% of Gain Year 3 = 40% of Gain Year 4 = 20% of Gain Year 5 = 0% of Gain Chapter 8- Taxable Income Miscellaneous Income:  Pension Benefits  Employment Insurance Benefits  Retiring Allowances  RRSP Withdrawals  Support Payments received for Spousal Support  Death Benefits (first $10,000 is exempt)  RESP payments received  Scholarships (fully exempt from tax)  Annuity Payments out of a Retirement Plan  Research Grants  Universal Child Care Benefit Non – taxable Income  Worker’s Compensation Benefits  Social Assistance Benefits  Lottery Winnings  Child Tax Benefits  Inheritances  Life Insurance Proceeds  Child Support Payments  Loans  Disability Benefits received if your employer did not pay for the insurance Deductions  Spousal Support  Moving Expenses  Child Care Expense  Interest Expense (if loan was used for investment purposes)  Disability Support Deduction Moving Expenses  are deductible if new home is 40 km closer to your new work location or post-secondary institution  moving expenses are deductible against the income earned in the new location. If they cannot be deducted in one year, they can be carried forward to next year  list of deductible moving expenses is in book Child Care Expenses  these are claimed by the lower income spouse  limited as follows: the lea
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