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Chapter 11 - Losses

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45 views20 pages

Chapter 11 - Losses

Uploaded by

Mutong Zheng
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Chapter 11

TAXABLE INCOME AND TAX PAYABLE


FOR INDIVIDUALS REVISITED

Copyright © 2021 Pearson Education Ltd. 1


From Net To Taxable Income

Business and Other


Employment Net Taxable Other Sources
Property Deductions
Income Capital Gains of Income
Income from Income

Division C
Deductions

Taxable Income

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From Net To Taxable Income

• Specific Deductions
– Employee Stock Options – Covered in Tax 1
– Deductions For Payments – Covered in Tax 1
– Lump-Sum Payments – Will not be covered
– Lifetime Capital Gains Deduction – Will not be covered
– Residing In Prescribed Zone – Will not be covered
– Carry Over Losses Deductible (COVERED IN CHAPTER 11 – Same
for corporate tax and personal tax)

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Treatment Of Losses

• Losses must be used in year incurred, if possible


– May not have enough income
– May not have right type of income
(e.g., capital gains required to use capital losses)
• Carry backs
– Will result in refund
• Carry forward
– Will result in reduced Tax Payable

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Treatment Of Losses

• Need To Track Separate Balances


– Different Carry Over Periods
– Income Type Restrictions

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TYPES OF LOSSES

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Types

• Non-capital losses (employment losses, business losses, property


losses, and business investment losses)
• Net capital losses
• Regular farm losses
• Restricted farm losses

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Personal Use Property

• Per CRA - Refers to items that you own primarily for the personal
use or enjoyment of your family and yourself. It includes all
personal and household items, such as furniture, automobiles,
boats, a cottage, and other similar properties.

• Personal Use Property


– Losses Not Deductible
– $1,000 Minimum = ACB = POD
– Gains Are Taxable

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Listed Personal Property

• Listed Personal Property


– Defined (ITA 54)
a) print, etching, drawing, painting, sculpture,
or other similar work of art;
b) jewelry;
c) rare folio, rare manuscript, or rare book;
d) stamp;
e) coin.

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Listed Personal Property

• Listed Personal Property


– Deductible Against LPP Gains Only
– Carry Back 3 Years, Forward 7 Years
– $1,000 Minimum = ACB = POD

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Treatment Of Losses

• Non-Capital Losses
– Example: employment losses, business losses, property losses
– Can be used against any type of income
– Carry over only available After Current Year’s Income Reduced
To Nil
– Carry Back 3 Years, Forward 20 Years

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Treatment Of Losses

• Capital Losses
– Losses that occur from selling property such as land,
building, equipment, investments etc.
– Excess, if any, of allowable capital losses over taxable
capital gains
– Can only be used against capital gains
– General Rules
• Back 3 Years
• Forward For Life Of Taxpayer

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Defined

• Allowable capital loss = 50% of the loss can be deducted only


(allowable signifies that 50% has already been calculated)
• Taxable capital gain = 50% of the gain is taxable only (taxable
signifies that 50% has already been calculated)

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Business Investment Losses

• A capital loss resulting from the disposition of shares or debt


of a “Small Business Corporation”
– CCPC (generally a private company and not publicly traded)
– Substantially All (90%) Of The FMV of assets are used to
produce active business income
– Primarily (50%) of business is carried on in Canada
• Special characteristic: Can be deducted against any type of
income
• 50% of it is deduction – Referred to as Allowable business
investment losses (ABIL)

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Business Investment Losses

• Must Be Deducted In Year Realized To The Extent Of Sufficient


Income
• Generally – disposition of shares or debt is a capital loss but
because it is a “Small business corporation”, losses are
treated as non-capital losses
• Unused Amounts
– Non-Capital Loss Carry Over
– Back For 3 Years, Forward 10 (Not 20) Years
– After 10 Years, Reverts To Capital Loss Carry Forward

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Farm Losses

Losses incurred as result of farming


• Hobby Farmers
– No losses deductible
• Full Time Farmers
– Losses deductible against any type of income
• Part Time Farmers
– Restricted farm losses (see following slide)

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Restricted Farm Losses

• Arise When:
1. Reasonable Expectation Of Profit
2. Not Taxpayer’s Principal Source Of Income
(Farming is a subordinate source)
• Restricted Farm Losses
– Back 3 Years, Forward 20 Years
– Only Against Farm Income
• Exception: First $2,500, plus one-half of next $30,000
– Maximum = $17,500
– Can be used on any type of income, remaining is restricted

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Regular Farm Losses

• Regular Farm Losses – full-time farmer


– Back 3 Years, Forward 20 Years
– Against Any Source Of Income

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THE END

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