AFM362 Lecture Notes - Lecture 16: Small Business
29 Jun 2018
School
Department
Course
Professor
the property is included in the taxpayer's income, that amount is added to the cost of the
property
One exception to this rule is an employment income inclusion arising from a stock option
benefit discussed in chapter 3,125
○
Dividends in property, not cash
•
Shareholders will pay tax on the FMV so the cost of the property received will be the same FMV
•
For lottery winnings, since it's not taxable in Canada, adding the FMV of the prize to the cost base
ensure that the lottery winnings will not be taxed when the prize is eventually disposed of
•
Dividends in kind and lottery prizes
Treated in the same manner as any other dividend for purposes of determining income
•
For tax purposes, stock dividends received by individual is grossed up and included in net income.
•
The cost base of shares acquired through a stock dividend is deemed to be equal to its paid up
capital which is generally the stated capital (usually par value).
•
Stock dividends
This provision is meant to deal with situations where a taxpayer disposes of an asset to trigger a
loss but has immediate intentions to repurchase the asset
•
The end result is to defer the triggering of the loss until the newly acquired substituted
property is disposed of
○
The superficial loss is not completed denied, but rather the provisions permits the superficial loss
to be added to the ACB of the substituted property (the newly acquired shares e.g.)
•
The taxpayer or an "affiliated person" must dispose of the property
1.
The taxpayer or an affiliated person acquires or re
-
acquires the same or identical property
during the period beginning 30 days before the disposition and ending 30 days after the
disposition
2.
The taxpayer or an affiliated person, at the end of the period referred to in point 2 above,
still owns at least some of the property
3.
Three conditions necessary to establish a superficial loss:
•
Superficial losses
See the textbook page 420
•
ABIL have no restriction and can be deducted against all sources of income rather than only
against net taxable capital gains
•
Computational rules
ABIL
The definition of a business investment loss includes capital losses arising from the disposition of
shares and debts of a small business corporation
•
Allowable business investment losses
Generally CCPC
•
For the purpose of a business investment loss only, an SBC which ceases to meet the condition in
the definition of an SBC will still be considered SBC if at any time in the 12 months preceding the
disposition it met the conditions in the definition of SBC.
•
Small business corporations (SBC) defined
The disposition of the shares or debt is to an arms
-
length person
1.
The debt has become a bad debt in the year, or
2.
For shares not actually disposed of, the company has become bankrupt during the year
3.
Must arise from a disposition of shares or debt of a SBC where
•
Disposition
AFM 362 Page 7
Document Summary
The property is included in the taxpayer"s income, that amount is added to the cost of the property. One exception to this rule is an employment income inclusion arising from a stock option benefit discussed in chapter 3,125. Shareholders will pay tax on the fmv so the cost of the property received will be the same fmv. For lottery winnings, since it"s not taxable in canada, adding the fmv of the prize to the cost base ensure that the lottery winnings will not be taxed when the prize is eventually disposed of. Treated in the same manner as any other dividend for purposes of determining income. For tax purposes, stock dividends received by individual is grossed up and included in net income. The cost base of shares acquired through a stock dividend is deemed to be equal to its paid up capital which is generally the stated capital (usually par value).
