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Chapter 7

# ADMS 3520 Chapter Notes - Chapter 7: Capital Gains Tax, Unemployment Benefits, Tax Shelter

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Chapter
7

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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

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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.

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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)
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