Module 6: Capital gains and losses - PD Net

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income calculation. Terminology tells you where you are in the calculation. The formula to compute taxable capital gains and losses may be summarized as follows: POD (gross amount received or $ XXX receivable) Less: • ACB (established as the $ XX original cost plus or minus prescribed adjustments) • disposition costs XX (XXX) Gain or loss $ XXX Gain or loss = capital gain or loss if no restrictions Taxable capital gain or loss (1/2)* $ XX * the actual rate used will depend on the date of disposition of the property The actual inclusion rate used under section 38 has varied, depending on the date of disposition. Where the capital property is gifted to an eligible donee, the capital gain inclusion rate is zero. The taxation of a portion of a gain may be deferred to subsequent taxation years if there is an unpaid balance of the selling price at the end of the taxation year. The maximum reserve calculation is equal to the lesser of two amounts calculated under section 40. Allowable capital losses are only deductible against taxable capital gains. This is done under paragraph 3(b). No capital loss can be claimed in respect of a depreciable property. The capital loss on the disposition of personal-use property is deemed to be nil. Capital losses on listed personal property (LPP) are deductible only against capital gains realized on LPP for the year, the three preceding years, and the seven following years. This is part of the taxable net gain calculation under section 41. The adjusted cost base (ACB) and proceeds of disposition (POD) of personal-use property (PUP) and LPP cannot be less than $1,000 (the de minimus rule). The "floating weighted-average method" is the only method allowed for arriving at a cost base for identical assets for tax purposes. The capital loss on small business corporation (SBC) shares or debt may, in some instances, be classified as a business investment loss (BIL): A BIL will become an ABIL (allowable business investment loss). The ABIL is first removed from the paragraph 3(b) calculation. The ABIL is deductible from any type of income, shown as a deduction under paragraph 3(d). When a principal residence is disposed of, an exemption is usually allowed for the total gain realized, if it was always inhabited by the family. A family may designate only one dwelling as a principal residence per year after December 31, file:///F|/Courses/2010-11/CGA/TX1/06course/m06summary.htm[11/10/2010 4:42:09 PM]
1981. The exempt portion is part of the section 40 calculation. When a taxpayer changes the use of a property, they are deemed to have sold the property at its fair market value and to have immediately reacquired the same property at the fair market value, which becomes the new adjusted cost base. There are a number of elections available to taxpayers who change the use of a property from income-producing to personal-use and vice versa. Where a taxpayer realizes a capital gain on the involuntary disposition of a capital property or on the voluntary disposition of a former business property, the taxpayer may elect, in the year the property is replaced, to defer that gain if the taxpayer reinvests the proceeds of disposition in a replacement property within a certain time frame. file:///F|/Courses/2010-11/CGA/TX1/06course/m06summary.htm[11/10/2010 4:42:09 PM]
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Module 6: Capital gains and losses - PD Net

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