Saturday, 26 March 2016

Issues Relating to Capital gains

1)      Meaning:
Capital Gains as the name suggests implies gain realized upon disposition of the capital asset. Capital asset could be an asset of any kind such as shares, securities, residential house or commercial offices, boat, trailer, car, any right in capital asset, debentures, bonds etc.
For Example, if the you buy shares at a cost of $9,970 and pay the buying commission of $30 and sell the same after some time at $15,030 and the selling commission is of $30, the capital gains will be worked out as follows:
            Sales Proceeds      -  $15,030
            Less: Buying Cost - $10,000
            Less: Selling Cost - $30
            Capital Gains=         $5,000
2)      Inclusion Rate:
Currently, only 50% of the amount of capital gains is taxed. Capital gains are taxed at the marginal rate of taxation. Marginal rate of taxes is the rate at which you pay the taxes for the current year. Another issues relating to the capital gains is that it arises upon the disposition of the capital asset. The word disposition means and includes sale, exchange, transfer, gift, extinguishment or relinquishment of an asset.
3)      Proceeds of Disposition:
When the asset is sold the proceeds realized from its disposition is called “Proceeds of Disposition”.

4)      Adjusted Cost Base:
The cost of buying the capital assets is referred to as “Adjusted Cost Base”. It also includes the cost of buying the asset

5)      When can you deduct Capital Gains and right to carry forward:
Another issue relating to capital gains is capital losses can be deducted only against capital gains and if there are no capital gains in the year in which the capital losses are incurred, it can be carried back three years and carried forward in future for an indefinite period.

6)      Meaning of Sale Proceeds:
Sales Proceeds could be either the sale price received upon sale of a capital asset or the compensation received upon the destruction or loss of insured assets or in case if the assets are compulsorily acquired by the government, the compensation received upon surrender of such a capital asset.

7)      Deemed Disposition:
The word deemed disposition is actually a fiction of law whereby it will be treated as if the capital asset is sold even if legal sale does not take place. Capital gains also include “Deemed Dispositions” which means that if you become a non-resident of Canada or if you throw your business assets from non-corporate form to a newly formed corporation, it will trigger the capital gains/losses implications. Likewise, the capital gains implications also arise upon the death of the tax payer. In all the cases of “Deemed Disposition” the proceeds of disposition will be the market value of the capital asset.
  

   

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