Capital Gains Deduction

• Identify requirements for claiming a capital gains deduction.¹
• Define an eligible small business corporation.²
• Define eligible small business corporation shares.³
• Define eligible individuals who may claim a capital gains deduction.⁴
• Define qualified properties for the capital gains deduction.
• Qualified small business corporation shares⁵
• Qualified farm property⁶
• Qualified fishing property⁷
• Identify the maximum amount of the current capital gains deduction limit.⁸
  • For qualified small business corporation shares
  • For qualified farm property
  • For qualified fishing property
• Identify amounts that limit a taxpayer’s claim for the capital gains deduction, such as:
  • Cumulative net income loss
  • Allowable business investment loss
  • Previously used amount of the capital gains deduction
• Explain the factors to consider in determining the amount of the capital gains deduction that should be claimed, such as:
  • Remaining availability of capital gains deduction
  • Availability of capital losses
  • Current marginal tax rate
  • Expected marginal tax rate based on amount of capital gains deduction claimed
  • Future need for capital gains deduction
  • Cash flow needs
  • Impact of Alternative Minimum Tax
  • Impact on asset’s adjusted cost basis 
• Evaluate the factors to consider in determining the amount of the capital gains deduction that should be claimed.  
• Explain methods that may be used to maximize the capital gains exemption.
• Explain the income tax impact to an individual from claiming the capital gains deduction.
• Estimate the income tax impact to an individual from claiming the capital gains deduction.

Deferral of Capital Gains / Capital Gains Reserve

•  Explain circumstances where capital gains may be deferred, such as:
  • When capital property is transferred to a spouse or common-law partner
  • When capital property is transferred to the surviving spouse, common-law partner or qualifying spousal or common-law partner trust of a deceased taxpayer
  • When capital property is transferred to an alter ego or joint partner trust by a taxpayer
  • When capital property is transferred to a corporation by a taxpayer who is or becomes a shareholder of the corporation
  • When capital property is transferred to a partnership by a taxpayer who is a partner or receives an interest in the partnership
  • When real property situated in Canada or a life insurance policy in Canada, is maintained when a taxpayer becomes a non-resident by leaving Canada
  • When an inter vivos transfer of farm property occurs between a taxpayer and their child or at death, subject to certain limitations
  • When shares of a Canadian small business corporation are disposed of and the proceeds of the shares are reinvested into another Canadian small business corporation
  • When former business property is disposed of and replaced by a taxpayer for use by a taxpayer or a related person for a similar use and for the purpose of gaining or producing income from a business similar to that which the taxpayer or related person used the former business property
• Define a capital gains reserve.⁹
• Explain requirements for claiming a capital gains reserve,¹⁰ such as:
  • Holding period of eligible small corporation business corporation shares
  • Maximum period over which the deferral may be claimed
  • Maximum time frame for acquisition of replacement property
• Identify that the capital gains reserve may not be claimed upon the death of an individual.
• Estimate the value of an individual’s capital gains reserve.
• Explain the income tax impact of deferring capital gains on a transfer of capital property.
• Estimate the tax impact of deferring capital gains on a transfer of capital property.
• Explain circumstances when income attribution may still apply despite capital gains being deferred, such as:
  • Transfer of capital property to a spouse or common-law partner
  • Transfer of capital property to a child
• Explain the factors to consider in determining the timing and amount of the capital gains reserve that should be claimed, such as:
  • Amount of sale proceeds not yet received
  • Availability of capital losses
  • Current marginal tax rate
  • Expected marginal tax rate if full gain was realized in one year
  • Future expected marginal tax rates in years that gain could be spread over
  • Cash flow needs
  • Type of asset sold
  • Legislated government amount
• Evaluate the factors to consider in determining the timing and amount of the capital gains reserve that should be claimed.   

Principal Residence Exemption

• Identify criteria for a property to qualify as a principal residence in Canada.¹¹
• Identify that a process exists for claiming the principal residence exemption.
• Identify housing units that may qualify as a principal residence.¹²
• Explain the principal residence exemption for Canadian residents for a property located in Canada.¹³
• Explain rules associated with designating multiple properties as principal residences in Canada.¹⁴
• Estimate the principal residence exemption that a taxpayer may claim.
• Explain the factors to consider in determining the amount of the principal residence exemption that should be claimed when two or more properties qualify for the exemption, such as:
  • Current marginal tax rate
  • Capital gain on each property
  • Length of ownership of each property
  • Future use of remaining property(ies)
  • Expected growth in remaining property(ies)
  • Availability of capital losses that may be applied against property(ies)
  • Cash flow needs
• Evaluate the factors to consider in determining the amount of the principal residence exemption that should be claimed when two or more properties qualify for the exemption.