Canada. Capital Gains Tax Guide. Supplementary. In this Guide PLUS. What.. New for 1992? Contents Index Forms

Transcription

1 Suppementary Guide Capita Gains Tax Guide 1992 In this Guide What.. New for 1992? Contents Index Forms PLUS Exampes charts Tax Tips Questions - Answers Revenue Canada offers services to the pubic in both officia1 anguages. Revenu Canada offre ses services au pubic dans es deux angues officiees. T4037(E)Rev.92 Canada

2 What Ysu Need to Know Before You Start Is this guide for you? This guide is for you if you had a capita gain or a capita Ioss in You generay bave a capita gain or oss whenever you dispose of capita property. Capita property is dcfined in Chapter 1 on page 7. This guide Wi show you how to cacuate this type of gain or 10s~. It wi aso show you how to cacuate your capita gains deduction. Use Schedue 3, Summary of Dispositions of Capita Propcrty in 1992, to record your capita gain or capita oss. This schcdue is incudcd with your Genera Tax Guide and rcturn package. Do you need any other forms or pubications? This guide bas copies of some of thc forms you may bave to compcte. You cari find them at the back of this guide. We aso refcr to other forms and pubications that give you more detaied information on diffcrcnt subjects. As you read this guide, ist thc forms and pubications you need on the order form on thc back covet. Then take or mai the form to your district taxation office. You cari aso ca thc Request for Forms tecphone number that was incuded with your Gcncra Tax Guide. Whcn requesting a pubication, aways ask for the mwt currcnt version. Do you need to read a of this guide? You may not need to read a of this guide to report your capita gains and capita osscs. You shoud ook through the tabe of contents before you start fiing in your return. It Wi hep you choose the chapters or sections that appy ta your tâx situation. In addition, rcfer to Chapter 1 for the definitions of tenns used in this guide. What s New for 1992? Outined beow arc the major changes we bave made to this guide. For more detais on a changes for YY2, sec the arcas highighted in yeow. Form T657, Cacuation of Capita Gains Deduction for 7992 on A// Capita Property If you disposed of quaified farm property or quaified sma business corporation shares in 1992 or a prier year, you are Eigibe to caim a ifetimc capita gains deduction of $500,000. TO cacuate your deduction, you need to compete form T657. WC no onger incude this form with this guide. If you disposed of this type of property, you cari get this form from your district office. It has the information you need to cacuate your deduction. Capita gains deduction We havc nxade it simper for certain individu& to caim the capita gains deduction. You may be abe to caim this deduction without competing any forms at a. Pease refer to ine 254 in your Genera Tax Guide for more information. Proposed changes This guide incudes ta changes announced by the Minister of Finance. These had net become aw at the titnç of printing. However, we are getting rçady to appy them. Capita gains deduction - Legisation is proposed to excude a or part of a capita gain or oss that resuts from the disposition of rea esrate from the cacuaion of the capita gains deduction. This change appies to certain rea estate disposcd of after February This change Wi aso affect the cacuation of your cumuative net investment oss. For mort detais, sec Chapter 5 in this guide..- This guide uses pain anguage to expain the mat common tu situations. If you need mort this guide, pease contact your district taxation office.

3 3 Contents Introduction Did yo se1 persona-use property or your home? Do yo bave a capita transaction or an income transactmn.?.<<...<<<,... When do yo bave a capita gain or a capita oss? When do yo report a capita gain or a capita oss? Do yo own a business? Are yo a member of a partnership? How do yo cacuate a capita gain or a capita oss? How do yo report a capita gain or a capita oss? Did yo se1 capita property in 1992 that yo owned before 1972?..<<...<. What forms are in this guide? What records do yo bave to keep? Chapter 1 - Definitions 6 Chapter 2 - Common Transactions Information sips... T3 sip T4PS sip... T5 sip sip... Rea estate and depreciabe property Rea est& Depreciabe properry... Seing a buiding ~II Seing part of a property... Canadian securities... Other securities and properties... Shaw... Bonds, debentures, promissory otcs, and other properties... Treasury bis (T-Bis) Identica properties Average cost cacuation... Persona-use property Empoyees stock options Chapter 3 - Other Transactions Eigibe capita property Mortgages Bad debts.,., Foreign exchange gains and osses Quaified sma business corporation shares Quaified farm property Inheriting propérty.: Listed persona1 property (LPP) C nmon transfers of property TO persans other than your spouse To your spouse or a tr st fbr your spouse Other transfers Fmns Eections.., Seing or donating certified Canadian c t ra property Chapter 4 - Capita Losses Who shoud read this chaptcr? When do yo bave a capita oss?..< Capita Iosses Aowabe business investment Ioss (ABIL) Rcduction in business investment Ioss Appying isted persona property (LPP) IOSSCS Supcrtïcia Iosses Rcstricted faux Iosscs II II : 22 Page Net capita osses of other years, ine TI return 22 How do yo appy net capita osses of other ycars to Appying et capita Iosses incurred before 1988 to Net caoita osscs incurrcd mior to Mav Net ca&1 osses incurrcd ifter May 22, 1985 and before Appying 1988 and 1989 net capita osses to Appying 1990 and 1991 net capita osses to How do yo appy a 1992 net capita Ioss to previous years? Chapter 5 - Capita Gains Deduction What is a capita gains dcduction? When cari yo caim thc capita gains deduction? 27 Who is eigibe to caim the capita gains deduction? 27 What is the capita gains deduction imit? Property disposed of aftcr February Non-quaifying rea property What is an active business? Cacuating your eigibe capita gains How do yo cacuate your capita gains dcduction? 29 Step I - Cacuating your CNIL Step 2. Cacuating your annua gains imit Step 3 - Cacuating your cumuative gains imit 34 Step 4 - Cacuating your capita gains deduction üvaiabe for Stcp 5 - Figuring o t your maximum caim Chapter 6 - Keserves What is â reserve? Who cari caim a rcserve? How do yo cacuatc a rcserve? Property sod on or bcfore Novembcr 12, Property sod after November 12, Other property Famiy farrn property or sma business corporation shares Are yo caiming a rcscwc for propcrty disposed of after February 1992? Chapter 7 - Principa Kesidence What is your principa residence? How do yo designate your home us your principa residence? Did yo se1 a or part of your principa residencc? 39 Specia situations Changing your property s se to a recta or business operation Eections Using part of your principa rcsidcnce for a renta or business operation Changing your menta or business operation to a principa rcsidence Farms Chapter 8 - Leaviag or Entering Canada Who shoud rcad this chapter? Did yo ewc Canada in 1992 ~ Other capita property Options fo- disposing of property Did you enter C ad:i it Are yo entitcd to cüim thc capita gains dcduction? 43 Index... 44

4 4 This section bas genera information you need to know before you start to cacuate your capita gain or capita I X. Did you se1 persona-use property or your home? Most peope are net affected by capita gains rues because the property they wn is for their own persona1 use or enjoyment. When you se1 persona-use property such as cars and boa, generay you do not end up with a capita gain because this type of propeny usuay does not increase in vaue over the years. As a resut, you may end up with a oss. Athough you bave t report a gain on the sae of persona-use property, generay y are not aowed to caim a 10% The rues for persona-use property are expained on page 14 in Chapter 2 of this guide. If you se1 your home for more than what it COS~ you, you generay do not bave to report the sae on your tax retur or pay tax on any gain as ong as: your home is your principa residence; and you did net designate any other houx as your principa residence whie you owned your home. For more information, see Chapter 7. Do you bave a capita transaction or an income transaction? You bave tu know the answer to this question before you cm continue in this guide. If you se1 a propcrty and end up with a gain or a oss, it may be taxed in ne of tw ways: as a capita gain or oss (capita transaction); or as an income gain or oss (income transaction). If you dispose of a property, you nced to find out if the transaction is a capita transaction «r an income transaction. The facts surrounding the transaction determine the nature of the gain or oss. If you woud ike more information on thc difference between capita and income transactions, get a copy of the foowing Interpretation Buetins: IT-459, Adventure or Conccrn in the Nature of Trade IT-2 18, Profit, Capita Gains and Losses from the Sae of Rea Est&, Incuding Farmand and nherited Land and Co~wer.sion of Rea Est&e from Capita Property to Inventory and Vice Versa IT-479 and Specia Reease, Transactions in Secor-ities The information in the rest of this guide deas with capita transactions. Therefore, if you bave an income transaction, you do not bave to read any further in this guide. If you bave an income transaction, i- et a copy of the Business and ProfessionaI Income Ta Guide. When do you have a capita gain or a capita oss? Usuay, you havc a capita gain or capita Ioss whcn you sc or are considered t bave sod a capita property. The foowing are exampes of cases where you are considered t bave sod capita property: you exchange ne property for another; you give property (other than cash) as a gift; you ~ nvert shares or other securities in your name; you sette or cance a debt owed t you; you transfer certain property t a trust; your property is expropriated; your property is stoen; your property is destroyed; an option that you hod t buy or se1 property expires;. a corporation redeems or cances shares or other sccuritics that you hod.* * If a corporation redeems shares that you hod, you wi usuay have a deemed dividend. The amount of the dividend Wi be show on a T5 sip. There are other situations when you are considered to bave sod a capita property even though there is no change in the property s ownership. This cari happa if:. y change the property s use (see Chapter 7); you eave Canada (sec Chapter 8): or the owncr dies (sec the Guide for Preparing TI Returns for Deceased Persans) When do you report a capita gain or a capita oss? When you se1 or are considered t bave sod a capita propcrty, you bave t report the sae in the year that it takes pace. You may net bave t pay tax for 1992, however, you sti bave t fie a return: when you se, or are considered t bave sod, any capita property in 1992 (whether or n t the sae resuts in ü capita gain or capita oss); or t report the taxabe part of any capita gains reserve you deducted in 1991 (sec Chapter 6). Tax Tip If you want to caim the capita gains deduction, you trust fie your 1992 return on or before Apri 30, For more information about the capita gains deduction, see Chapter 5. Do you own a business? If you own a business that has a fisca year-end other than Deccmber 3 1, you sti report the sae of a capita property in the caendar year the sae takcs pace. Exampe Nadia wns a constructi n firm. The fisca year-end for her business is June 30, In November of 1992, she sod a capita property that she used in hcr business. As a rcsut of the sae. she had a capita gain. Nadia has t rep«rt the capita gain on her incomc ta return for She does this even though the sae took pace after her business fisca year-end date of Junc 30.

5 5 Are you a member of a partnership? If you are, it is possibe that your partnership has a fisca ycar-end other than December 31. If the partnership ses capita property during its fisca year, report your share of any capita gain or capita oss in the year in which the partnership s fisca year ends. Do not report the gain or oss in the caendar year the sae took pace. Wow do yoka cacuate a capita gain or a capita Ioss? If you sod capita property in 1992, you Wi need to know the foowing three amounts to cacuate any capita gain or capita oss: the proceeds of disposition; the adjusted cost base (ACB); and the outays and expenses you incurred when seing your property. TO cacuate your capita gain, subtract the ACB of your property from the proceeds of disposition. From this new amount, subtract any outays and expenses not aready incuded in your ACB. t-tow do you report a capita gain or a capita oss? Use Schedue 3, Summary of Dispositions of Capita Property in 1992, to cacuate and report ai of your taxabe capita gains or aowabe capita osses. Do not incude any capita gains or capita osses in your business or property income, even if you used the property for your business. Sec Chapters 2 and 3 for information on how to compete Schedue 3. You may bave deducted a reserve in an earier year, or you may be deducting a reserve in If either one of these appy to you, fi in Form T2017, Summaty of Reserves on Dispositions of Capita Property. For more information on reserves, see Chapter 6. Dit3 you sei capita propevy in 1992 that yobe owrted before 1972? If you did, you bave to appy a specia set of mes when cacuating your capita gain or capita oss. You bave to use thesc specia rues because you did not bave to pay tax on capita gains before If you woud ike more information, you cari get the foowing Interpretation Buetins (ITs): Shares - IT-78, Capita Property Owned on Decembet 31, Identica Properties Media rue - IT-84, Capita Property Owned on December 31, Median Rue (Ta-Free Zone) Eection - IT-139, Capita Property Owned on December 31, Fair Market Vaue Specia situations - IT-217 and Specia R&ase, Capita Property Owned on December 31, Depreciabe Property WçPat forms are in this guide? Besides Schedue 3, there are severa other forms that you may need. This guide has two copies of each form isted in the foowing section. Use one as a working copy and keep it for your records. Incude the other form with your return. Form TA - Request for Los Carry-Back - Use this form to request a oss carry-back. Sec Chapter 4 for more information.. Form T657A - Cacuation of Capita Gains Deduction for 1992 on Other Capita Property - This form Wi hep you cacuate your capita gains deduction. Sec Chapter 5 for information on how to fi1 in this form. Form T936 - Cacuation of Cumuative Net Investment Los (CNIL) ta Decemher 31, Use this form ta cacuate your CNIL to December 31, Sec Chapter 5 for more information. Form T Summary of Reserves on Dispositions of Capita Property - Use this form to deduct a capita gains reserve in You aso use it to incude a reserve deducted in 1991 in your capita gains for Sec Chapter 6 for more information. Wkaî records do yob bave to keep? You Wi need the information from your records or vouchers to cacuate your capita gains or capita osses for the year. You do not need to incude these documents with your return as proof of any sae or purchase of capita property. However, it is important that you keep these documents in case we ask to sec them ater. If you bave investment income or expenses, make sure you keep a record of these amounts. You Wi need them to cacuate your CNIL when you cacuate your capita gains deduction. We expain the CNIL in Chapter 5. In addition, it is a good idea to keep a record of the fair market vaue of the property on the date you: inherit it; receive it as a gift; or change its use. If you need more detaied information on keeping records, get Information Circuar 78-10, Books and Records Retention/Dest~uction.

6 6 Adjusted cost base - This is usuay the COS of your property pus any expenscs you incurred to acquire it. These cxpenscs may incude commissions and ega fces. The COS of a capita property is its actua or deemed cost depcnding on the type of propctty and how you acquircd it. You have ta adjust the cost of your propcrty to incudc capita expenditures such as the cost of additions and improvements to the property. You cannot add current expenses such as maintenance and rcpair costs to the cost base of a propeny. If you woud ike more dctaied information on the differcnce betwecn capita expenditures and current expenscs, get Interpretation Buetin IT-128, Capita Cost Aowancc - Deprcciabe Property. For mort information on additions to, and deductions from, the cost of a property, get Interpretation Buetin IT-456 and Spccia R&ase, Capita Propcrfy - Somc Adjosrments fo Cost B&?. In some cases, specia rucs may appy SO that the cost of a propcrty is considered to be an arnount othcr than its actua cost. For instance, when you inherit or receive propcrty as a gift, you arc considcrcd to bave acquired the propcrty at its fair market vaue on the date you acquired it. Simiary, when you win property as a prix from a ottcry schcmc, you are considered to bave acquired the prix? at its fair markct vaue at that time. If you woud ike more information, get Interprctation Buetin IT-213, Pkxx f?om Lottery Schemes, Poo System Betting and Givcaway contests. Aowabe capita oss - This is the amount of you! capita Ioss that you are cntited to dcduct. For 1987 and previous taxation years, the aowabe portion was one-haf of your capita oss. For 1988 and 1989, the aowabc portion was twwthirds. For 1990, 1991 and 1992 thc aowabe portion is three-quarters. Arm s ength trdnsaction - This is a tcrm used to describc Ü transaction between unrcatcd parties. Eacb party acts in his or hcr own sef intcrest. Reatcd persans arc net considcred to dea with eüch othcr at arm s Icngth. Reatcd pcrsons incude individuas connccted by bood rcntionship, marriage, or adoption, such as a hushand and wifc, or a father and son. Aso, a corporation and i sharehodcr who contros thc corporation are rcatcd. Unreated partics may net bc dwing with cach other at arm s ength if, for instance. ont is undcr the infuence or contro of the othcr. If you woud ike mort information on this. xc Intcrprctation Buetin IT-419 and Spccia Rceasc, Meaning of Arm s Le@. Business investment oss - This is a capita Ioss that resuts from the actue or deemcd disposition of certain capita properties. It cari happen when you XII ont of thc foowing to a person you dea with üt ürm s Icngth: a sharc of a sma business corporation: OI a dcbt owed to you by a sma business corporation. You may incur such a Ioss if you are deemcd to bave disposcd of, for ni procceds of disposition, a debt or share of a sma business corporation undcr any of the foowing circumstances: A sma business corporation owes you a debt (other than a dcbt from thc sae of persona-uc property), that is considcrcd to be a bad debt at the end of the year. You own â share (other than a share for persona-use property) of a sma business corporation that at thc end of the year: has gone bankrupt in the year; is insovent and a winding-up ordcr has been made under the Winding-up Act: or - is insovent at the end of thc ycar and neither thc corporation, nor a corporation it contros, carries on a business. Aso, at that time, the shares in the corporation havc a fair market vaue of zero, and it is reasonabe to expcct that the corporation wi be dissoved or wound-up and Wi not commence to carry on business. You must eect in your return to be dccmcd to bave sod thc shares in the corporation for ni proceeds of disposition, and to havc reacquired thc shares immediatcy thereafter at a cost cqua to ni. You or a person that you do not dea with at arm s ength Wi bc decmed to havc rcaized an offsctting capita gain if thc corporation, or a corporation it contros, carries on business within 24 months foowing thc cnd of the year in which the disposition occurred. You report the capita gain in thc taxation year the corporation commences to carry on business. Thc above appics if you or the person own the shares in the corporation at the timc thc business is commenced. If you woud ikc mort information about business invcstment osses, sec page 20 in Chapter 4. You an aso get Interprctation Buetin IT-484, Business Invcstmenr L0.Ysc.s. Canadian-controed private corporation - This is a private Canadian corporation that is net controed dirccty or indiwcty in any way by: ont or ~nore non-residcnt pcrsons; ont or more pubic corporations (othcr than a prcscribcd vcnture capita corporation): or 0 any combination of the above. For more information, get Interpretation Buetin , C~~n~~~ii;~n-Ci~nrr-o/cd Pkfate Corporation. Canadian security ~ A Canadian sccurity ix ii share of a corporation that is aident in Canada; or. a unit of ii mutua fund trust, or a bond, debcnture, bi, note. mortgüge. or simiar obigation issucd by a person rcsidçnt in Canada.

7 Capita cost aowance - This is a tax term for depreciation. In the year you buy a depreciabe property, such as a buiding, you cannot deduct the fu cost. Howevcr, sine this type of property wears out or becomes obsoete over time, you cari deduct a part of its cost each year, for a pericd of severa years. The deduction for this is referred to as capita cost aowance. Capita gain - You bave a capita gain whcn you se], 01 are considered to bave sod, a capita property for more than its adjusted cost base pus the expenses or outays incurred to se1 the property. A capita gain is the difference between your proceeds of disposition and its adjusted cost base ess the expenses or outays incurred to se1 the propcrty. Capita oss - You bave a capita Ioss when you se, or are considered to bave sod, a capita property for ess than its adjusted cost base and the expenses or outays of seing the property. The capita oss is the difference between the adjusted cost bax of the property before you sod it, and your proceeds of disposition ess any expenses or outays of seing the property. Capita property - This is any property which, if sod, woud resut in a capita gain or capita oss and incudes depreciabe property. You usuay buy it for investment purposes or to earn incarne. Some common types of capita property incude: your cottage; securities, such as stocks and bonds; or and, buidings, and equipment that y,ou use in a business or a renta operation. Capita property does not incude the trading assets of a business, such as stock or inventory. Specia rues appy whcn you se1 certain types of property. Thesç types of property incude: insurance poicics; Canadian resource properties; cutura properties given to designated institutions (sec page 19 in Chapter 3); eigibe capita propertics (sec page 17 in Chapter 3); foreign resource properties; depreciabe properties sod at a oss (sec page II in Chaptcr 2); and timber resource properties If you woud ike detaied information on resource properties, get Interprctation Buetin IT-125, Dispositio~x of Resource Pmperties. Cumuative net investment 10s~ (CNIL) - This is an amount by which: the tota of your investment erpenses for each year after 1987; is more than the tota of your investment income for each year aftcr You use your CNIL when you cacuate your capita gains deduction. See Chapter 5 for more information. Deemed acquisition - This term is used when you are considered to bave acquired property, even though you did na actuay buy it. Deemed disposition - This term is used when you are considered to bave disposed of property, even though you did not actuay se1 it. Deemed proceeds of disposition - This term is uscd when you arc considered to bave received an amount for property, even though you did net actuay receive any funds. Depreciabe property - This is usuay capita property used to earn income from a business or property. The cost cari be written off as capita cost aowance over a number of years. Capita cost aowance is defmed on this page. Disposition (dispose of) - This is usuay an event or transaction where you give up possession, contro, and ai other aspects of property ownership. Empoya+ stock options - This is an option that a corporation grants to an empoyee. By using this option, the empoyee cari buy the corporation s shares, or the shares of a corporation with which it does not dea at arm s ength, for a prie that may be ess than the fair market WIW. Fair market vaue - This is the highest doar vaue that you cari gct for your property in an open and unrestricted market. Listed persona1 property - This refers to the foowing persona-use properties that normay increase in vaue: prints, etchings, drawings, paintings, scuptures, or other simiar works of art; jeweery; rare foios, rare manuscripts, or rare books; stamps; or coins. You cari detcrmine tbe vaue of many of these items by consuting with art, coin, jewcery, and stamp deaers. You cari aso refcr to these deaers cataogues. Ai or any part of such propcrty, any interest in it, or any right to it, is considered to be isted persona1 property. Net capita oss - If your aowabe capita oss is more than your taxabe capita gain, the difference between the tw is your net capita oss for thc year. How net capita osses are appied is expained in more detai in Chapter 4 on page 23. Non-arm s ength transaction - This is a transaction betwecn peope who were not deaing with each other at arm s ength at the time of the transaction. Pease sec the definition of arm s ength transaction earier in this chapter. Outays and expenses - These are amounts that you incurred to se a capita propcrty. You cari deduct outays and cxpenses from your proceeds of disposition. These types of expcnses incude: fixing-up cxpcnses finders fecs commissions

8 8 brokers fees surveyors fees ega fees transfer taxes advertising COLS You cannot reduce your other income by caiming a deduction for these outays and expenses. Instead, use them t reduce your capita gain or increase your capita oss. Persona-use property - This refers t items that you wn primariy for the persona1 use or enjoyment of your famiy and yoursef. It incudes a11 persona1 and househod items such as furniture, automobies, boats, and other simiar properties. Prescribed security - This is net considered to be a Canadian security. A prescribed security generay incudes: a share of a corporation (other than a pubic corporation) whose vaue, at the time y dispose of it, cornes mainy from rea est&, resource properties, or both; a bond, debenture, bi, note, mortgage, hypothec, or simiar obigation of a corporation (other than a pubic corporation) that you do not dea with at arm s ength at any time before you dispose of the security; a share, bond, debenture, bi, note, mortgage, hypothec, or simiar obigation you acquire from a person with whom you do net dea at arm s ength. Proceeds of disposition - This is usuay the amount that you received or Wi receive for your property. In most cases, it refers t the sae price of the property. This coud incude compensation you received for property that has been destroyed, expropriated, or stoen. Quaifïed farm property - This is property that you or your spouse wn. It is aso a famiy farm partnership in which you or your spouse hod an interest. Quaified fxm property incudes: A share of the capita stock of a famiy farm corporation. An interest in a famiy farm partnership. Rea property such as and and buidings Eigibe capita property such as mik and egg quotas Rea property or eigibe capita property is quaified farm property ony if it is used t carry on a farm business in Canada by any ne of the foowing: You, your spouse, any of your parents or chidren. We define chidren beow. A famiy farm corporation where any of the above individu& wn a share of the corporation. A famiy farm partnership where any of the above individu& wn an interest in the partnership. Your chidren incude: your natura Chid, adopted Chid, or step-chid; your grandchid or great-grandchid; your son-in-aw or daughter-in-aw; or. a person who, whie under 19, was in your custody and contro and was whoy dependent on y for support. You may bave bought eigibe capita property before June 18, We Wi consider that you are using this property t carry on a farm business in Canada as ong as ne of these conditions are met: In the year you se1 the property, either you, a partnership, or a famiy farm corporation used the property, or any repacement property, to carry on a farm business in Canada. Either you or a famiy farm partnership referred to above owned the property and used it t carry on a farm business in Canada for at east five years. If you buy rea or eigibe capita property at any time, we Wi consider that you are using the property to carry on a farm business in Canada, as ong as certain conditions are met. If throughout the 24 months before the sae, the property is owned by you, your spouse, any of your chidren, parents, or a famiy farm partnership in which any of these individuas owned an interest, and: the individu1 referred t above used the property or a rcpacement property in a farm business in Canada, and in at east tw years the individua s gross income from the farm business was Luger than the individua s income from ai other sources in the year; or a famiy farm partnership or famiy farm corporation used the property t carry on a farm business in Canada throughout a period of at east 24 months, and during this time any individua referred t above was activey engaged in the farm business. Quaifïed sma business corporation shares - Sec the definition for Sma business corporation in this chapter. Kea property - This is property that canot be moved, such as and or buidings. We commony refer t such property as rea estate. Sma business corporation - This is a Canadian-controed private corporation in which the fair market vaue of a11 or most (90% or more) of its assets twt2: used mainy in an active business, carried on primariy in Canada by the corporation or by a reated corporation; shares or debts of connectcd corporations that were sma business corporations; or a combination of these tw types of assets. A share of a corporation is considered t be a quaified sma business corporation share if: at the time of sae, it was a share of the capita stock of a sma business corporation, and it was owned by you, your spouse, or a partnership of which you were a member: throughout the 24 months immediatey before the share was disposed of, no ne other than you, a partnership of which you were a member, or a pers reated to you, owned the share*; and throughout that part of the 24 months immediatey before the sharc was disposed of, whie the share was owned by you, a partnership of which you were a member, or a person reated t you, it was a share of a Canadiancontroed private corporation of which the fair market vaue of more than 50% of the assets were:

9 Y used mainy in an active business carried on primariy in Canada by the Canadian-controed private corporation, or by a reated corporation; - certain shares or debts of connected corporations; or - a combination of these two types of assets. * As a genera rue, when a corporation issues shares to a person, or a partnership reated to that person after June 13, 1988, a specia situation exists. We consider the shares to bave been owned, immediatey before they were issued, by a person who was not reated to the individua or the partnership. As a resut, to meet the hoding-period requirement, the individua, or a person or partnership reated to the individu1 cannot dispose of the shares for 24 months after they were issued. However, this tue does not appy to shares issued:. as payment for other shares; or in connection with a property that a person or the members of that partnership disposed of to a corporation. The property disposed of has to consist of either: - ai or most (90% or more) of the assets used in an active business operated by that person or by the members of that partnership; or - an interest in a partnership where a or most (90% or more) of the partnership s assets were used in an active business operated by the members of the partnership. Taxabe capita gain - This is the amount of your capita gain that you bave to report as income on your return. For 1987 and previous taxation years, the taxabe part of a capita gain was one-baf. For 1988 and 1989, the taxabe part was two-tbirds. For 1990, 1991 and 1992, the taxabe part is tbree-quarters. Termina 10~s - This type of oss occurs when you bave an undepreciated baance in a cass of depreciabe property at the end of the taxation year or fisca year-end, and you no onger own any property in that cass. You cari deduct the termina oss when you cacuate your income for the Y~W. Undepreciated capita cost - Generay, it is equa to the tota capita cost of ai the property of a cass, ess the proceeds of disposition when the property is disposed of, minus the tota deductions for capita cost aowance caimed in pria years.

10 10 This chapter gives you information about some of the most common capita gains transactions. It aso provides information about where you shoud report the sae of a capita property on Schedue 3, Summary of Dispositions of Capita Property in You cari find this scheduc in your Genera 7à.x Guide and return package. Information T3 sip sips Box 21 - Capita Gains - You may receive a T3 information sip with an amount in this box. If there is no asterisk (*) in this box, enter the amount on ine 533 of Schedue 3. If there is an asterisk in this box, you shoud bave received instructions with your sip, teing you where to report the amount on Schedue 3. You either enter the amount on ine 513, quaified sma business corporation shares, or on ine 516, quaified farm property. The reason for this, is that these types of property are eigibe for a higher capita gains deduction. We expain the capita gains deduction in Chapter 5. Box 30 - Capita Gains Eigibe for Deduction - If there is an amount in box 21, there mut aso be an amount in this box. If the amount is not the same as the amount in box 21, you bave to enter the difference on ine 536 of Schedue 3. This Wi hep you cacuate your capita gains deduction and your cumuative net investment 10s~. We expain this ater in Chapter 5. Exampe Janet received a T3 sip with $500 in box 21 and $300 in box 30. Since there was no asterisk in box 2 1, she entered $500 on ine 533 of Schedue 3. Because the amount in box 30 was ess than the amount in box 2 I, she entered the difference between thc two amounts ($200) on ine 536 of Schedue 3. Note If box 30 has i, a zero, or a dash (-), no amount of your capita gain is eigibe for the deduction. If there is no entry in box 30, contact the issuer for an amended sip. Box 37 - Insurance Segregated Fond Losses - If thcre is an amount in this box, enter it on ine 533 of Schedue 3. This amount is a oss, SO if it is your ony entry, put brackets around the amount. If it is not your ony entry, subtract the amount in this box from the tota of the amounts indicated on your other sips. T4PS sip Box 34 - Capita gains (or osses) - Enter this amount on ine 533. If this amount has brackets around it, it is a capita oss. If this is your ony entry, put brackets around the amount on ine 533. If it is not your ony entry, subtract the amount in this box from the tota of the amounts indicated on your other sips. Box 38 - Foreign capita gains (or osses) - Do not incude this amount on your Schedue 3. It is aready incuded in box 34 of your T4PS sip. You enter this amount on ine 508 of your Schedue 1 and use it to cacuate your fore& tax credit. Box 40 - Non-eigibe capita gains - If there is an amount in this box, enter it on ine 536 of Schedue 3. This is the amount of your capita gain that is not eigibe for the capita gains deduction. You Wi use this amount to cacuate your capita gains deduction and your cumuative net investment 10s~. We expain this ater in Chapter 5. Do not subtract this amount from the amount you bave aready entered on ine 533. T5 sip Box 18 - Capita Gains Dividends - Enter this amount on ine 533 of Schedue 3. Box 24 - Non-eigibe portion of box 18 - If there is an amount in this box, enter it on ine 536 of Schedue 3. This is the amount of your capita gain that is not eigibe for the capita gains deduction. You Wi use this amount to cacuate your capita gains deduction and your cumuative net investment oss. We expain this ater in Chapter 5. Do not subtract this amount from the amount you bave aready entered on ine 533. T5013 sip Box 27 - Capita gains (osses) - Enter this amount on ine 533 of Schedue 3 uness you havc received additiona detais. For instance, the detais area of your sip may indicatc that your gain is for quaified farm property or quaified sma business corporation shares. If this is the case, enter your gain on ine 513 or ine 516 of Schedue 3. The detais area of your sip coud aso identify amounts incuded in box 27 that are not eigibe for the capita gains deduction. If this is the case, enter the amount that is not eigibe on ine 536 of Schedue 3. This Wi hep you cacuate your capita gains deduction and cumuative net investment oss. We expain this in Chapter 5. Box 28 - Capita gains reserve - Enter this amount in the appropriate area on Form T2017, Summary of Reserves on Dispositions of Capita Property. You cm WC Form T2089, Capira/ Dispositions Suppementary Schedue Re: Information Sips, to cacuate your gain or oss. Rea estake and depreciabe property If you sod rea estate or depreciabe property in 1992, you bave to report your capita gain or oss in the section caed Rea estate and dcpreciabe property on Schedue 3. If you sod rea este after February 1992, there are changes to the way the capita gains deduction is cacuated. We expain this in the section Property disposed of after February 1992 on page 27 in Chapter 5. Rea estate A rea cstate transaction vacant and: incudes the sae of:

11 renta properties - both and and buidings; farm property - both and and buidings (other than quaified farm property - sec page 18 in Chapter 3); and commercia and industria and and buidings. Do not use this section of Schedue 3 to report the sae of persona-use property, or the sae of mortgages and other simiar debt obigations on rea property. You bave t report this information on Schedue 3 under Persona1 use property, and Bonds, debentures, promissory notes and other properties. If y sod rea property in 1992 that incudes and and a buiding, y : first cacuate how much of the seing price is for the and, and how much is for the buiding; then report the sae of your and and buiding separatey on Schedue 3. If you dispose of a buiding and end up with a oss, a specia rue may appy. Under the rue, you may bave to consider your proceeds from the buiding as an amount other than the actua proceeds. For more information, see the section caed Seing a buiding in 1992 in this chapter. TO hep you cacuate your gains or osses from rea est&, use Form T2083, Capita Dispositions Suppkmentary Schedue Re: Rea Es&te. However, do not use this form for your principa residence, depreciabe property, or other persona-use property. Depreciabe property When y dispose of depreciabe property, y may end up with a capita gain or a oss. The oss on the sae of a depreciabe property is net considered t be a capita oss. Instead, you may be entited t caim a termina oss if you no onger own any property in that cass at the end of your fisca period. Unike a capita oss, you cari deduct the fu amount of the termina oss from your income. For capita cost aowance (CCA) purposes, depreciabe properties are grouped into casses. There are a number of casses for a wide range of depreciabe properties. For exampe, computer hardware and systems software, some automobies, and certain portabe toos are grouped together in Gass 10. If y want t know what cass your property is in, ca1 your district office. The beginning undepreciated capita cost (UCC) is the capita cost of the depreciabe properties cass. From this amount you deduct: for a cass in that any proceeds that you received from seing property in that cass; and thc CCA deducted ver the years. The remaining amount is your ending UCC. This amont becomes your beginning UCC for the foowing year. You subtract from the UCC of the property the esser of the foowing tw amounts: in that cass the proceeds of disposition of the property minus the reated outays and expcnses: and the capita COL of the property. When you se1 a depreciabe property for ess than its origina capita cost, but for more than the UCC in the cass, you do net bave a capita gain. However, if the UCC of a cass has a negative baance at the end of the year, the negative baance is considered ta be a recapture of CCA. You bave to incude this recapture in income for that year. If the UCC of a cass has a positive baance at the end of the year, and you do not bave any properties Mi in that cass, the positive baance is considered to be a termina oss. You ca deduct the termina oss from income in that year. However, if the baance for the UCC of a cass is zer at the end of the year, then y bave neither a recapture of CCA, nor a termina 10s~. The rues for recapture and termina oss do not appy to passenger vehices that you incuded in Gass Exampe In 1986, Stefan bought a piece of machinery for $20,000 for his business. It is the ony property in its cass at the bçginning of The cass has a UCC of $11,000. He sod the piece of machinery in 1992 and purchased no other property in that cass. The foowing chart gives you three different seing prices ta show you how Stefan woud hande a variety of situations. A B C Cost of properties acquired: $20,000 $20,000 $20,000 Minus: CCA : 9,000 9,000 9,000 UCC at beginning of 1992: $11,000 $11,000 $11,000 Minus the esser of: - cost ~ $20,000; and - proceeds of: (A) $ 8,000 (B) $16,000 (C) $24, GiG$o$o Termina ticcapture tecapture IOSS In addition to a recapture of $9,000 in exampe C, there is a capita gain of $4,000. If you need more information about the recapture of CCA and termina osses, get Interpretation Buetin IT-478, Capita Cost Aowancc - Recapture and Termina LOS. You ca aso get the Business and Professiona Income Tax Guide, or the Renta Income Tax Guide. Seing a buiding in 1992 If y sod a buiding in 1992, and it was the ony property in the cass, the UCC of the cass before the sae is considered to be its cost amount. If there is more than ne property in the same cass, you bave t cacuate the cost amount of each buiding as f010ws: Capita cost ucc Cost of the buiding x of = amount Capita cost of a the of the properties in the cass cass buiding In certain situations, specia rues appy that make the seing price an amount other than the actua seing prix This happas when you meet botb of the foowing conditions:

12 12 you, or a person with whom you do not dea at arm s ength, own the and on which the buiding is ocatcd, or the and adjoining the buiding, if you need the and SO that the buiding cari be used; and you se1 the buiding for an amount that is as than both tts COS~ amount (as cacuatcd in the previous formua), and its capita cost to you. If you sod a buiding under thesc conditions the termina 10% on thc buiding woud be restricted but the capita gain on the and woud be reduced. If you woud ike more detaicd information, get Intcrpretation Buetin IT-220. Capita Cost Aowance - Prcceeds of Disposition of Depreciabe Property. You ca SC Form T2085, Capita Disposition.~ Suppementary Schedoe Rc: Depreciahe Property, to cacuate any capita gain or Ioss you havc when you se1 depreciabe proputy. Seing part of a property When you XII ony part of a property, you bave to dividc the adjusted cost base (ACB) of the property between the part you se1 and the part you keep. Exampe Sophia owns 100 hectares of vacant and. The and is a of equa quaity. She decides to XII 25 hectares of this and. Since 25 is one-quarter of 100, Sophia cacuates one-quarter of the tota ACB as foows: The tota ACB $100,000 Minus: The ACB of the part she sod 25,000 Equas: Thc ACB of the part she kept $ Sophia thcn cacuates any capita gain or Ioss using an ACB of $25,000 for the 25 hectares she sod. If you woud ike more information, get Interpretation Buetin IT-264 and Specia Reeasc, Part Dispositims. Canâdian securities You report a disposa1 of Canadian securitics or prcscribed securities on Schedue 3 at: Line Quaified sma business corporation sharcs Line Quaified farm property Line Shares Line Bonds, debentures, promissory notes and other properties Read the information under the appicabe headings on pages 12, 14, 17 and 18 to determine wherc you shoud report your disposition. Chapter 1 contains the definitions of Canadian securities. prescribed securities. quaificd smzd business corporation shares and quaificd farm propcrty. If you disposed of Canadian securities, thcrc is a specia eection avaiabe to you. You may actuay bave an income gain or oss from the sae of a Canadian security. The specia eection is avaiabe in the year that you dispose of a Canadian security. This eection is not avaiabe ro traders or deaers in securities, or to anyone who was a non-resident of Canada when the security was sod. You cm eect to report your gain or oss as a capita gain or oss even though it is actuay an income gain or 10s~. Howevcr, from the time you make the eection, we Wi consider a your Canadian securitics to be capita propertics. If you are a member of a partnership, and the partnership owns Canadian securities, each partner is treated as owning the sccurity. When the partnership disposes of the security, each partner may eect to treat the security as capita property. An eection by one partner Wi not resut in each member of the partnership being treated as having made the ccction. If you woud ike to make this eection, fi in Form T123, Eection on Disposition of Canadian Securitks, and attach it to your 1992 rcturn. Pease remember that once you make this eection. you cannot reverse your decision. For more information on Canadian securities, get Interpretation Buetin IT-479 and Specia R&ase, Transacri<m in Securities. Other securities and properties This incudcs sharcs, bonds, debentures, promissory notes, and other such properties. If you sod any of these items in 1992, you Wi rcceive a T5008, Statement of Securities Transactions or an account statement. Report any capita gains and capita osses in the section Other securities and properties on Schedue 3. This section is broken down into severa subsections SO that you cari report different sccuritics and properties separatey. SI-tares Use this section to report a gain or Ioss when you se1 sharcs or securitics that are not described in any other section of Schedue 3. This incudes: pubicy trüded shares; sharcs that quaify as Canadian securities or prescribed secwitics if they are not quaified sma business corporation shares or quaified famiy farm corporation sharcs; sharcs issued by foreign corporations; and the sae of a unit in a mutua fund trust. The foowing section has two cxampes. They share some common information. They show you two different situations and how you woud tï in this part of Schedue 3 for cach situation.

13 13 Exampe 1 In 1992, Franco sod 100 shares of ABC Pubic Corporation of Canada for $8,500. He received the fu proceeds at the time of the sae. He paid brokerage fees of $500. When he bought the shares in 1985 for $3,800, Franco paid brokerage fees of $200. TO fd in Schedue 3, Franco needs to find out three things: his proceeds of disposition; his adjusted cost base; and the amount of any outays and expenses that reate to the sae. After he finds out these three amounts, Franco cacuates his taxabe capita gain as foows: Proceeds of disposition $8,500 Minus: The ACB -origina cost ~... $3,800 -brokerage fees on purchase.<...<<...<<.<. $200 $4,000 Outays and expenses (brokerage fees on the sae) $500 $4,500 Capita gain $4,ooo Taxabe capita gain (314 X $4,000) $3,ooo Franco reports the sae under Shares in the section Other securities and properties. He reports his tota proceeds on ine 5 19, and his capita gain on ine 520. Other securttes Shaw and properties NO. Of skxes 100 Name Of corporation and cass Of stares ~XBCTu6(ic Cooration I 1 0fCanartn 8, I I I I Tota proceeds 519 j 4,000 j 00 1 Gain (or oss) , I I I 8,500 I 00 1 Gain (OC kxs, 520 4, If Franco has no other capita gains or capita osses in the year, he reports $3,000 (314 x $4,000) as his tota taxabe capita gains amount. He fïs in this amount at the bottom of Schedue 3, and again on ine 127 of his return. Franco may aso be entited to the capita gains deduction. If you woud ike more information about this deduction, sec Chapter 5. Exampe 2 Using the same situation in Exampe 1, assume that Franco had sod his shares for ony $3,700. As you cari sec beow, Franco ends up with a capita 10s of $800. He coud use the oss to offset any capita gains he had in If his capita osses werc more than his capita gains in that year, his net capita oss for 1992 woud be three-quarters of the difference between tbe two amounts. For more information about capita asses, sec the section 1992 Capita osses on page 20 in Chapter 4.

14 You ca use Fonn T2082, Capita Dispositions Suppementary Schedue Re: Shares, t hep y cacuate any gains or osses from the sae of shares. Bonds, debentures, promissory notes, and other properties If you se any of these types of properties, report the sae on Schedue 3 in the section Bonds, debentures, promissory notes and other properties. Report the foowing capita gains and capita osses in this section: Options - If y woud ike information on disposing of options t se1 or buy shares, get Interpretation Buetins IT-96, Options Granted by Corporations ro Acquire Shares, Bonds oi- Debenturcs, and IT-479 and Specia R&ase, Transactions in Secorities; Discounts, premiums, and bonuses - If, in 1992, you received any of these amounts for investments that you bave, y ca get Interpretation Buetin IT-114, Dkcounts, Premioms and Bonuses on Debt Obigations. You cm use Form T2084, Capira/ Dispositions Suppenmmy Schedue RC: Bonds and Other Obigations, t hep you cacuate your gains or osses from disposing of bonds, debentures, and promissory nota. Treashary bis (*-Bi!!s) You Wi receive a T5008, Staternent of Securities Transactions or an account statement for transactions that took pace in When a T-Bi is issued at a discount and y keep if unti it matures, the interest deemed t accrue t you is the difference between the issue price and the amount you cash it in for. However, you may se1 the T-Bi bcforc if matures. In this case, in addition t the interest accrued at that time, you may have a capita gain or capita Ioss. Exampe Raph purchased a T-Bi on December 1, 1991 for $49,000. The date of maturity was March 1, However, he sod it on Febmary 4, 1992 for $49,500. The effective yied rate was 5.36%. Raph cacuates interest on the T-Bi as foows: Effective Number of days Interest yied x T-Bi hed x Purchase = to be rate Number of da F price incuded in the year SO Y. d in income 5.36% x 3 x.$ = $ Raph cacuates his capita gain as foows: Proceeds $49,500 Minus: Interest $ Net proceeds $49,027 Adjusted cost base $ Capita gain a figure out the average cost of each property in the group at the time of each purchase. This aows you t determine your ACB. You need t know this amount before you cari cacuate any capita gain or as. Exampe Bake owns 100 common shares of a corporation. He bought these shares for $15 each. He ater bought another 150 shares of the same cass of that corporation for $20 each. In 1992, he sod 200 of these shares for $24 each. Previousy purchased shares: 100 x $15 = $1,500 Newy purchased shares: &3 x $20 = $3,ooo Tota shares: 250 Tota cost: $4,500 Average cost of each sharc: $4, = $ 18 Cacuation of capita gain Seing price: (200 x $24) = $4,800 Minus: ACB of shares sod: (200 x $18) = $3,600 Capita gain: $1,200 Taxabe capita gain: ($1,200 x 314) $900 You have t cacuare the average cost each time y buy another identica property. Exampe After seing 200 shares in the corporation, Bake had 50 eft ( ). He then bought 350 more shares (which were identica properties) at $21 each. HC has t recaadate the average cost of the shares as f00ws: Cost of previousy purchased shares: 50 x $18 = $ Cost of newy purchased shares: - x $21 = $7, Tota shares: 400 Tota cost: $8, Average cost of each share (recacuated amount): $8,250 i 400 = $ You shoud use this same method t cacuate the average cost for identica bonds or debentures that you bought after However, the average cost is based on the principa amount for each identica property. A bond, debcnture, or simiar debt obigation that a debtor issues is considered t be identica t another if: thcy are both issued by the same debtor; and a thc attachcd rights are the same. You cannot take the principa amount of individu1 debt obigations into account when you are figuring ut if these properties are identica. Ddenîica properties Persma-use property Properties of a group are considered t be identica if cach When you dispose of a persona-use property, you Wi end property in the group is the same as a the others. Thc most up with a capita gain or a capita Ioss. TO cacuate this common exampe of this is when you bave shares of thc amount, foow these rucs: same cass of the capita stock of a corporation. if the ACB of thc property is ess than $1,000, its ACB Average cost cacuation is considered to x $1,000; You may buy and se1 severa identica properties at different if the proceeds of disposition are ess than $1,000, the prices ver a period of time. If you do this, y bave t procccds of disposition are considered t be $1,000; and