Taxation – Lecture 5

 Involuntary and volunatary dispositions

o Involuntary disposition (fire, expropriation)
 Can defer gain and recapture if similar use property is acquired within 2 years
after the year of disposition
o Voluntary disposition
 Can defer gain and recapture if:
 Asset is real estate that is used in the business [248(1) former business
property definition], AND
 Replacement property is purchased within 1 year after the end of the year
in which the disposal occured
 Year of disposition – show recapture and pay related tax
 Year of replacement – file amended tax return to remove recapture and receive
a refund of the tax paid
 Change in use
o From business use to personal use causes a disposition at FMV
o From personal use to business resulted in a deemed disposition
 If FMV < original cost = FMV is the proceeds of disposition and new cost base for
CCA purposes
 If FMV > original cost = cost + taxable capital gain is new cost base for CCA
purposes
 Depreciable property acquired from non-arm’s length parties
o Non-arm’s length generally refers to related persons (including corporations)
o Adjust capital cost for CCA purposes for the purchaser
 Reduce by ½ of capital gain realized on transfer [ITA 13(7)(e)]
 Add TCG to purchase price or Deduct from total sold price to corp.
 Terminal loss restriction on sale to affiliated persons
o Terminal loss on sale to affiliated person is nil
 Affiliated person - spouse, corporation controlled by taxpayer or spouse
o Loss remains with the seller who can continue to claim CCA on the amount
o Seller can recognize remainder of terminal loss in the future when the asset is not
owned by an affiliated person
 Goodwill and other intangibles
o Includes capital expenditures of an intangible nature that are not included in any other
class
o Some of the common expenditures that qualify:
o Goodwill (purchased)
o Franchises, licenses, and concessions (that do not have a specific legal limited life)
o Trademarks
o Customers lists
o Incorporation costs (in excess of $3,000)
 GW cont
o The full cost of acquisition is added to the UCC of the pool
 o CCA rate is 5%
o Accelerated CCA applies on net additions (if positive)
o Dispositions of property may result in recapture or capital gains
