eBook Summary – Chapter 12
Capital Gains and Losses
Step 1: Situation
Determine the facts
specific to the case.
Definitions
Capital property:
a property acquired with the intention of
holding it to earn income through its use.
Capital gain:
difference between the proceeds of
disposal and the ACB of the asset
Taxable capital gain:
capital gain multiplied by the inclusion
rate (currently ½).
Disposition of property:
entitles taxpayer to proceeds of
disposition (sale, change in use, death
of a taxpayer, ceasing residency,
gifting).
Three-step process
Step 2: Analyze
Apply each case fact to the court
factors* to determine if the asset
sold is a capital asset or inventory.
Capital vs. income factors
*Factors to consider:
 Intention at time of acquisition
 Relationship of the transaction to the
taxpayer’s business
 Nature of the asset
 Number and frequency of similar
transactions
 Length of period of ownership
 Feasibility of taxpayer’s intention
 Reason for sale
Step 3: Conclude and advise
Conclude on whether the profit
from selling the asset is a capital
gain or business income. Discuss
the tax implications of the
conclusion.
Special topics
1. ACB of identical properties — moving
weighted average
2. Superficial losses — not deductible in the
period (added to cost base of remaining
properties)
3. Capital gains reserve — lesser of:
- Capital gain × (proceeds not yet due /total
proceeds)
- 20% of capital gain × (4-number of
preceding years ending after the
disposition)
4. Business investment loss — disposition of
shares or debt of a small business corporation
- ½ is an allowable business investment loss
(ABIL), which can offset any source of
income (not restricted to taxable capital
gains)
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