Governments, no taxation without representation (re eurig estate).

Courts Definition of a Tax: Lawson : : (1) enforceable by law, (2) imposed under the authority of the legislature, (3) imposed by a public body, and (4) imposed for a public purpose, fee Re Eurig Estate, [1998] 2 S.C.R. 565. is directly linkable to a service or good being provided. bear a relation to the actual cost of providing the good or service. Subsection 91(3) anySubsection 92(2) direct Bank of Toronto v Lambe (1887), 12 App. Cas 575 (P.C.). bank intended to pay, banks method incidental Unlike Kingstreet Investments Ltd. v. New Brunswick, [2007] 1 S.C.R. 3. (even though common practice) Marginal Tax Rate: Average Tax Rate: History of Income Taxes in Canada: Canada Revenue Agency) administer and collect not only federal, but provincial income taxes. Tax collection agreement the Income Tax Acts calculation of taxable income Two Exceptions: Quebec, Alberta Evaluating Taxes and Tax Regimes: Revenue Generation: Thats the typical reason governments raise taxed, but not only reason, like behavioral reasons, sin taxes, and we can evaluate on this basis Tax Revenue: Tax base into Tax Rate, Efficiency: minimally affects a persons behaviour. Compliance and enforcement costs Fairness or Equity: Basic Principle: Ability to Pay Principle:Standard of Living Principle: Unit 2 A tax unit (i.e. taxpayer),A tax base, A taxation year A taxation rate regime Tax credits, Tax Unit: person person includes (non-exhaustive) corporation, any entity exempt from tax is also considered a person, disclosure requirements, intevivos testamentary trusts Rugby team example, dont fit into categories, probably not subject to it, are partnerships persons? No, natural person doesnt work Residence in Canada Introduction: only persons who are resident in Canada at any time in the year. employed in Canada, carries on business, disposes off taxable property in Canada, mostly passive income, like dividends, rents, royalties, if source of income is in Canada, it will be taxed, treaty with US, only one, enforcement must consider both the common law and statutory deeming rules. Residence of an Individual Common Law Test: Thomson v Minister of National Revenue Residence is: Chiefly a matter of the degree ordinarily resident from occasional, casual or deviatory residence. comprehensive factual analysis: Under this analysis, the most important/almost determinative factor is the residential ties of the individual under consideration, his/her spouse or common law partner and any dependents. These secondary residential ties (as the text describes them) include: Personal property in Canada, Social ties with Canada, Economic ties (courts generally exclude retirement plans, other benefits) with Canada, Canadian drivers licence, Canadian seasonal dwelling place or leased dwelling place, Canadian passport, Memberships in Canadian unions or professional organizations, etc. Before secondary stuff: available a residence for immediate or short term, 3 or 6 months To derive some certainty, CRA forms not used, intention is not determinative, virtually irreversible, 2 used to be Provincial Residency for Individuals: Thomson test with two important modification.December 31 of the particular taxation year You can only be found to be resident in one province for the year. Smale 2009 CarswellSask 243 (Sask Q.B.) separated, not resident, business income through a permanent establishment exception Residence of an Individual Statutory Deeming Rules Special Individuals rules - paragraph 250(1)(b) - (g): Special Individuals Members of the Canadian forcesGovernment officers/servants (loosely defined - quite a broad category) Children (and certain spouses) of the above Most countries have a deeming rule, the country that they are living in will do one of two things to make sure they dont pay tax, deemed not be resident, deem person to be non-taxable entity (Canada takes this approach for other people living in Canada) The Sojourner Rule in paragraph 250(1)(a) (which is 183 days or more) You are either resident or sojourner, Purpose of the temporary visit is irrelevant with one EXCEPTION? The US example., day doesnt mean 24 hours federal surtax for lack of provincial tax Tax Base: employment, business, property (investment), net capital gains, and other (miscellaneous category called receipts, spousal support, pension payment, you can look at s 56 if you are curious about this), WORLDWIDE INCOME, Tax Deductions vs. Tax Credits deductions 25% of whatever money is paid out of Canada to NRC is subject to tax, sucks to be non- Canadian, does account for RCs, taxpayer specific, earning revenue, source or non source Net method: Answer: 40,000 10,000 (25% TAX)= 30,000 (gross method= 25/75)

40K 10K deduction= 30k 7.5k= 22.5k (Govt. pays 2.5k we pay 7.5k, so its same 25/75, so a deduction doesnt mean you dont bear costs, you bear costs here in same proportion, previously we were keeping money, now spending. Net tax liability comes out to be 7.5 k again by this method. And also 22.5 32.5 comes from the RRSP deduction, add that shit 400, 10,000 deduction (3900 govt. 6100 person? Yes as its deduction) now deduction is more, as income is taxed at higher rat e, so you save more shit 85 to 75 how do we handle this shit? 5000 * 36% + 50000 *32%= 3400 Credits: taxpayer-neutral, dont affect income, multiply by 25% Limited Exception: charitable donations (section 118.1): For the 1st $200 of charitable donations claimed in a year, you follow the general rule for tax credits of multiplying the amount of donations claimed by the lowest marginal rate (25% when combine federal and Alberta); However, for any additional donations above $200 claimed in a particular taxation year by a taxpayer, you take such excess donations (up to a general maximum of 75% of the ta xpayers income for the year with several exceptions) and multiply it by the highest marginal rate federally and 21% in Alberta, for a total rate of 50%! Tax Planning Tip Many of the common tax credits available to individuals are contained in subsection 118(1) basic personal credit (paragraph 118(1)(c)), married or common law partner credit (paragraph 118(1)(b)), child tax credit (paragraph 118(1)(b.1)), etc. Other common tax credits include: charitable donation tax credit, medical expense credit, pension income credit, old age credit, tuition and education credits, etc. Some other points about tax deductions and tax credits: If tax deductions exceed taxable revenues to create a net loss in respect of a particular source of income (or activity), then that loss: In some cases may be used to offset taxable income from another source (or activity) in the current tax year, and In other cases, can be carried back up to 3 taxation years or carried forward to offset taxable income in those tax returns (see section 111). More specifically, if the loss is not a loss from the disposition of a capital asset, referred to as a non-capital loss, then it can be carried back up to 3 years and forward generally up to 20 years and offset against any other source of income in those years; However, if the loss is a loss from the disposition of a capital asset, referred to as a net capital loss, then the loss can still be carried back up to 3 taxation years and can be carried forward indefinitely (i.e. until the taxpayer dies), but can only be used to offset net taxable capital gains in those years. Given this feature, the benefit of a deduction will generally be realized either in the year that it is claimed or in a prior or subsequent year.In contrast, for the majority of tax credits, if they cannot be used in the current year to reduce an existing tax liability (or refund taxes withheld at source during the taxation year), then the benefit is effectively lost. An alternative (and common) way of stating this is that tax credits are generally non-refundable. That said, there are some exceptions where tax credits can be used by someone other than the taxpayer (i.e. tuition and education tax credits) or carried forward to a subsequent year (i.e. student loan interest).A few tax credits are also refundable (i.e. the GST credit) High Level Summary of the Calculation of (Net) Taxes Payable: Step #1 Calculate your net income (i.e. revenues minus deductible expenses) on a source by source basis Step #2 Aggregate sources of income and claim non-source specific deductions (if any) Step #3 - Calculate taxes payable based on marginal tax rates Step #4 Determine which tax credits you are entitled to, add them up and multiply them by the appropriate rate (usually the lowest marginal rate) Step #5 use this tax credit amount to reduce your tax liability and determine your net taxes payable Tax Exemptions Some examples that currently exist in the Act include: 50% of capital gains, $750,000 of capital gains arising from the disposition of qualified small business corporation shares and qualified farm property, income of an Indian or band that is situated on a reserve, lottery winnings, gifts, strike pay, human rights damage awards, gains from the sale of a principal residence, and scholarships from post-secondary education. Pre-tax Income * Tax Rate = Taxes Payable, Pre-tax Income Taxes Payable = After-tax Income, Pre-tax Income * (1 Tax Rate) = After-tax Income (amalgamation of the first 2 calculations), Pre-tax Income = After-tax Income/(1 Tax Rate) Taxation Year, Tax Rates, Choice of Unit Individual v Family (horizontal equity is violated, more people means more taxes) Unit 3: The Income Tax Act: Table of Proposed Amendments (xiiiIncome Tax Regulations: As we have already discussed, Regulations (starting on page 1585) are the administrative rules that the Executive Branch of the government (i.e. the Governor in Council or Cabinet) create to help implement the substantive provisions of the Act. This taxing power is properly/constitutionally delegated pursuant to section 221. Tax Cases: The primary Tax Court of Canada. This is a national court created by the Tax Court of Canada Act (T-2) with limited jurisdiction to hear appeals with respect to various matters and statutes (section 12, but Court of Queens Bench Section 20 provides that the Tax Court has the ability to make its own Rules of Court (which it has so make sure you consult it as the rules might be different than the Rules of Court within the province) There are two types of hearings in the Tax Court - informal and general procedure cases , Same judges do both cases, so no difference really in precedential value, technically,

Many of these cases are run by tax payer himself, and here unlike general shit, it does not have to be a lawyer that the taxpayer appoints. In fact there is a discussion to get law students in on this. Any case can be heard as long as the money is 25,000 less. Has nothing to do with complexity, but if you are somewhat beyond the limit, you can conceded the amount in excess of the threshold, Appeals from the Tax Court (in both streams) are to the Federal Court of Appeal and then to the Supreme Court of Canada. Needless to say, leave from SCC is needed Be careful about both CRAs summaries and interpretations. Advance Tax Rulings (ATRs): Technical Interpretations: Unit 4: The Administration of Income Tax Law: CRA, The Department of Finance drafts and enacts the legislation, but The CRA (along with the Department of Justice) administers it. 150(1.1), April 30 deceased individuals, passed away after October, at least 6 months weekend or statutory holiday, deadline extended 11:59 p.m. of the next business day. individual does not have to file (a) does not have a tax liability, (b) has not disposed of capital property, and (c) does not have a positive balance in a Home Buyers Plan or Lifelong Learning Plan, but Minister demand, must do or penalty, statutory limitations clock ticking so file Flow Chart: Starting point is filing of return, april 30 requirement, (some exceptions) a notice of assessment (desk assessment) Important Point: the CRA does not have to wait nor is it bound by the information contained, slip scene. Additional 3 years scene, not if negligence of fraud, if you dont file period doesnt run, tax preparers have been targeted in the past, in the case of a civil audit for compliance, the taxpayer has a positive duty to assist the CRA in its audit ,you dont penalties under act, court order for compliance, contempt of court if you still dont comply. Power of assumption of info. Criminal tax evasion, charter protections, has to tell criminal, and if both if civil stuff ended Notice of Objection : relevant facts and the reasons, law, reasons must be based in law or facts, or application, 90 days. Appeals Division new person, working papers but solicitor client privilege Notice of Appeal to the Tax Court of Canada in a timely fashion pursuant to subsection 169(1). The appeal officer can either agree with the appeal or issue a reassessment, and the reassessment will typically agree with at least some of what the taxpayer says, so liability will be less, so not a bad idea to go to appeal, again the rule is 90 days, You must go through the appeal before filiing an objection before the tax court any costs at notice of objection or appeal stage are deductible as expenses, the payment is solely for purposes of stopping interest from accruing and not as an admission or acceptance of the additional liability. If successful you get interest (lower) The Burden of Proof in Tax Appeals: Northland Properties Corporation liability may be based on (1) information provided by the taxpayer on his/her tax return, (2) information independently gathered by the Minister, and/or (3) any assumptions made by the Minister initial legal burden (cost effective) of disputing the Ministers Assessment is placed on the taxpayer. Question: how does the taxpayer successfully challenge the Assessment? Answer: generally speaking, by presenting sufficient evidence to contradict the evidence and assumptions relied upon by the Minister for the Assessment (on a balance of probabilities standard) 1st Challenge the Ministers allegation that he did assume those facts, 2nd Assume the onus of showing that one or more of the assumptions was wrong, or 3rd Contend that, even if the assumptions were justified, they do not of themselves support the assessment (i.e. improper application of the law to the facts). so burden shifts to Minister Settlements SCC yes vs 2 FCA no Stuffs changing, in Ontario, govt. allowed to settle corporate tax cases, but FCA cases still stand, some tax experts would agree that it is possible to offer a settlement within the tax code, shift facts around and stuff, Unit 5: Employment Income:: 4 main sections Subsection 5(1) provides that a taxpayers income from an office or employment is the salary, wages, and other remuneration, including gratuities, received by the taxpayer during the year. included for tax purposes, on a cash basis (basis of measurement) - when received (legal entitlement, unconditional right to be paid), (every once in a while it becomes an issue), almost anything received Cliffe v M.N.R. (1957) Caution! Parliament passed 78(4) must be paid under 179 days after corporations year end, so Section 6 any benefit of any kind received connected to his/her employment will be taxable as employment income., can be client. If you want to get away from it, look at statutory exceptions, judge made exceptions, or CRA administrative exceptions, one popular is administrative exception is frequent flier points Section 7 deals with the taxation of employee stock options- In practice, employee stock options can be an excellent way to retain and remunerate key employees without the employer having to pay out cash. There can also be some tax benefits to this form of remuneration (i.e. can delay the recognition event and/or sometimes change the characterization of the benefit for tax purposes) All that said, given changes in accounting rules and securities legislation regarding the recognition and reporting of stock options, this form of remuneration has lost some of its popularity in recent years.

Section 8 deals with employment deductions. As we will see, the drafting technique for section 8 is very similar to section 6 broad general rule with limited exceptions/clarifications. The problem from the taxpayers perspective is that the broad general rule, set out in subsection 8(2), is that an employee cannot deduct anything against his/her employment income for tax purposes, unless it is specifically provided for in section 8. Section 8 also follows the cash basis approach for deducting expenses for income tax purposes as subsection 5(1) sets out for the recognition of employment income Generally speaking, allowable expenses will be deductible in the year that they are paid as opposed to the year(s) to which they pertain (explain) Characterization: tax and non-tax (vicarious, employment legislation) Employment (includes people holding office) or Business subsection 248(1): Employment is defined unhelpful Business is Question: what are the tax implications of this characterization issue? Scope of Deductions: limited to 8 employee, service contractors wanna be independent contractors Employment Insurance (EI): employment relationship: then both or the employer will pay both. Independent Contractor himselfm but lost contract independent wont, while employee will almost always receive some Vicarious Liability (non-tax issue: liable for employees, not for contractorsw Payment and Withholding of tax: Wiebe Door Services Ltd. Analysis: the whole relationship, comprehensive factual analysis of the parties. but the parties intention as objectively manifested by facts. Control Test What and How. One of most important: Subcontracted out. Secondary importance indicia: Mode and time of payment - Evaluation of the method and performance of work Right to suspend or dismiss the person engaged to perform the work Ownership of Tools Test least important of the four tests Chance of Profit/Risk of Loss Test (sometimes referred to as the Entrepreneurial Test) second most important test after control but a realistic opportunity to do a lot better or a lot worse Integration Test - whether the service recipient is so integral to the providers business that the activity would end/fail if the recipient ceased to be a customer/client (employment) Incorporated Employees: Changing relationship by incorporating: 1st Benefit deductions 2nd Benefit EI premiums 3rd Benefit sharing with family 4th Benefit using a corporation may create a tax deferral and hence the availability of more pre -tax income/wealth for other (income earning) purposes during the deferral period For instance, if: A Canadian-controlled private corporation, Active business income, combined rate of 14%, small business deduction, incorporated employee personal service business in subsection 125(7) That income is not eligible for corporate tax rate of 15%, it is in 30s, closer to 40%, second implication is that corporation is very limited in types of expenses it can deduct, Subsection 125(7) defines a personal services business as: A service business carried on by a corporation where, The individual who provides the services (not goods) on behalf of the corporation (the incorporated employee) or anyone related to the individual is a spe cified shareholder of the corporation, AND Specified shareholder is defined in subsection 248(1) very generally as a person who owns not less than 10% of the issued shares of any class of the capital stock of the corporation The incorporated employee would reasonably be considered an employee of the service recipient but for the existence of the corporation (Wiebe Door), UNLESS The corporation employs in its business throughout the year more than 5 fulltime employees

Dynamic Industries Ltd. v Canada, They found business relationship based on the facts,
Introduction to Employment Benefits: Allowances are taxable Exception - mileage -54 cents for the first 5,000 km and 48 cents for each additional km. Not taxable by exception contained in paragraph 6(1)(b) (certain types of plans, life insurance, automobile benefits, but limited, counselling services in respect of: (a) mental/physical health of the taxpayer or someone related to the taxpayer, and (b) the re-employment or retirement of the taxpayer Subparagraph 6(1)(a)(vi) certain scholarship programs provided by the employer to the employees children, ) employment expense under section 8, Three primary rules for deducting employment expenses in calculating business income: no personal or living expenses, reasonable amount of expense deductible, deducted from pre tax income. No taxaction, act, courts, CRA General Approach to the Inclusion (and Taxation) of Employment Benefits: Employer employee relationship, client can come. If not these, or CRA administrative, then 3 things. Characterization as an Employment Benefit Lowe v Canada, CRA assessment contravened published policy (2 part test): 1st Did the item under review provide the employee with an economic advantage that is measurable in monetary terms? 2nd if an advantage was provided, was the primary beneficiary (pbtest) the employer (non taxable) or the employee? Relationship to an Office or Employment: R. v Savage, widest Valuation: Detchon Analysis: it is for teachers. average cost per student to BCS, other methods may be full tuition, incremental,

Employment Deductions Generally speaking, there are two types of deductions that employees are entitled to: Deductions from Employment Income - these are the deductions specifically listed in section 8 (example of a source specific deduction) Generally: legal expenses, sales expenses (salesperson), expected to travel and also required to pay expenses or not fully reimbursed, dues (law society expenses), home office expenses, but it must be a term of employment contract, and you have fill this massive form, for all these employment expenses Best option is for the firm to pay expenses, might come in exam Other Deductions - things like RRSP deductions, alimony/support payments, etc. (what I refer to as non-source specific deductions), this creates real incentive to have business rather than employment relationship Starting Point: subsection 8(2) limited to section. To somewhat reduce Parliament enacted a non-refundable Canadian Employment tax credit in subsection 118(10).This credit is based upon the lesser of the employees income for the year and a base amount ($1,117 for 2013) and is multiplied by the lowest federal marginal rate of 15% (this is a federal credit), much less than service provider. Alberta has a refundable family employment credit for Alberta residents with children under the age of 18 who meet the income eligibility criteria (A family net income of less than $53,725 for families with one child, $70,275 for families with two children, $80,200 for families with three children, and $83,500 for families with four or more children) What is a Business? Everything really, Hallmarks The sale of goods or services The intention to make a profit from a persons activities and An element of risk but also system An adventure in the nature of trade intention and then sell Business Income Distinguished from Property Income Generally speaking, the rules for calculating income from a business and a property are the same for tax purposes. Section 9, which is the first key section in this area, states that a taxpayers income for a taxation year from a business or property is the taxpayers profit from that business or property Given this, in most cases, it is not necessary to distinguish between the two types of income. a few exceptions: Access to the small business deduction: (only certain types corporatsions can it, only Canadian controlled private corporations that are earning active business income, the first 500,000 dollars, if you have a CCPC earning property income, then not eligible). Attribution Rules: (approach of taxing individuals distinctly creates incentive to equalize income, in some cases they encourage, in other cases they dont, in a variety of cases there are rules that dont encourage, called attribution rul es, as a general rule attribution rules only apply in property income) Registered Retirement Savings Plans: (eligible if employment income, business income, generally property income doesnt give you that entitlement, couple of exceptions How do we decide? Depends on effort required generally, business requires a lot more effort generally, as example, you lend your friend, property, RBC lends, business Generally speaking, there are four main categories of property income: interest, dividends, rents and royalties. Where an individual earns one (or more) of these types of income, it will often be characterized as property/investment income. That said, this characterization is very contextual and will depend on the amount of activity that is required/expended to generate the income. Business Income Distinguished from Capital Gains due to the 50% inclusion rate for capital gains On the other hand if the taxpayer suffers a loss they will prefer if business, for two reasons, first reason business losses are 100% deductible (cg only 50%), second relates to what you can do with that loss, capital losses can only be used to offset or reduce capital gains, but if y ou dont have gain at all? You can carry it and offset capital gains for three preceding taxation years, T1form, but what if no preceding gains? You can carry it forward until the taxpayer dies, but if you have a business loss you can use it for offsetting any other sources of income, but if no gains? Carry it back 3 years, carry forward is for 20 years, (is this either or?) at the time of acquisition of the asset Primary intention test: when the taxpayer acquired the asset, did he/she primarily intend to (a) sell the asset for a profit (if yes, business, and no need to move forward), or (b) use the asset (either to generate income or for personal purposes)? If latter, capital gains, unless secondary overrides. Secondary Intention Test: did the taxpayer have a secondary intention to sell the asset for a profit if the primary intention was frustrated which motivated the taxpayer to purchase the asset (Secondary intention must have been a motivating factor at the time of the asset, was it essentially too good a deal to pass up at the time of acquisition? At the time of the purchase they knew they could always sell, one way or another they were going to make money) taxpayers actions and conduct rather than any court statements: More specifically, a court will consider: factual analysis, court trying to determine intentions, not just these indicia, so you could make up stuff, none of these indicia conclusive Number of Similar Transactions (doesnt go other way): Nature of Asset: sometimes almost determinative, two rebuttable presumptions, shares for capital income, land is business Return on Investment: If the current rate of return is so low compared to the value of the investment that a reasonable businessman would not make that investment, then the court will decide that the primary intention was to sell, speculators therefore cant fool How does this Transaction Relate to the Taxpayers Business? A taxpayers profits from transactions that are closely related to his other ordinary business activities are usually character ized as business income. There is a strong presumption that a transaction connected in any way with a taxpaye rs usual business is intrinsically part of that business - although this presumption is rebuttable Degree of Organization: where a taxpayer deals with property in much the same way as a dealer would with similar property, then any resulting profit is likely to be characterized as business income. Length of

Ownership: for some assets, the longer the asset is held, the more likely that a Court (and CRA) will consider the gain to be on account of capital. However, if there is no reasonable rate of income being earned/generated on the property while being held, the fact that it is held for a long period of time probably will not impact the characterization. Income from (Capital/Business) Assets , (b) what type of income is it generating while owned (if any)? The 1st question will determine how to characterize the gain or loss on disposition, the 2nd question will determine how to report the income generated by the asset while owned. The Election for Capital Gains Treatment Given this uncertainty as to when a sale will be on account of income vs. capital, subsection 39(4) was enacted to give taxpayers (both individuals and corporations) the option to elect that all dispositions of Canadian securities (subsection 39(6) - share of the capital stock of a Canadian resident corporation, etc) will be deemed to be on account of capital. (lifetime election) It is not possible for someone whose business is to sell stock for a living Capital Gains: not subject to tax before January 1, 1972. only 50% of capital gains are taxable The taxation of capital gains begins on section 38 of the Act. Section 40 defines: A capital gain as being the amount by which a taxpayers proceeds on the disposition of property exceeds the adjusted cost base (ACB) of the property and any associated expenses of disposition (Proceeds-ACBExpenses= CG/CS-tax (50%= 1st what constitutes a disposition (and when does a disposition occur) for tax purposes? (employment=actually receives, for business and property, we look at the substance and see when has the person satisfied all his obligations and we can estimate it, for CGS, we it depends on disposition, now what is a disposition? 2nd what are proceeds of disposition (and how are they calculated)? 3rd what is the ACB (and how is it calculated)? 4th what are included in the associated expenses of disposition? Dispositions A disposition is very generally defined in paragraph 248(1)(a) to include any transaction or event entitling a taxpayer to proceeds of disposition of the property. It then continues to give specific examples of transactions that will and will not constitute dispositions. As noted in the text (page 993), the most common form of a disposition (which is recognized as such for tax purposes) is a voluntary sale of property for valuable consideration.That said, recognized dispositions can be either voluntary or involuntary (i.e. expropriation/theft) and can be for consideration or for no consideration (i.e. gift). In the case of gifts paragraph 69(1)(b) deems the taxpayer to have received the fair market value (FMV) of the gift (as proceeds of disposition) so you pay shit for something you didnt get anything for Further, the Act may deem property to be disposed of even if there is no actual change in legal title or money receipt. Also noted in 248(1), there are some transactions that are not considered to be dispositions, including: transfers of property to secure a loan, bailments, leases, granting of an option, licences, etc. Rent seems to be disposition. Not Generally speaking, a disposition occurs for tax purposes when the vendor has an absolute but not necessarily immediate right to be paid the sale proceeds, even if instalments. Other testsIt is when the attributes of ownership pass to the purchaser, If a formal contract exists, it may be the time of transfer specified in the agreement, I settlement date (i.e. the date on which the seller is required to deliver the share certificates and the purchaser is required to pay for the shares) (they report on a yearly basis, that seems to be the problem) Proceeds of Disposition: As set out in the definition in section 54, on an arms length sale, the proceeds of disposition is generally the amount of the sale price of the property sold (excluding GST) However, as the section 54 definition illustrates, the proceeds of disposition will generally include any and all consideration flowing to the (now former) capital property owner Important Point: Also includes non-monetary consideration like tangible property Adjusted Cost Base Original + useable. No benefit until sale, exception depreciation. (capital cost allowance). Improvements= Capital Expenditures, part of ACB, repairs and maintenance expenses deductible, incentive

Algoma Central Railway, [1967] C.T.C. 130 (Ex. Ct.) was the expenditure made with a view to bringing into existence an

advantage for the enduring benefit of the taxpayers business? If the answer is yes, then the expenditure is characterized as a capital expenditure; if the answer is no, then the expenditure is characterized as a repairs and maintenance expense. In the Central Amusement Co. Is the expenditure annual, recurring or continuous? temporary advantage What is the magnitude of the expense in relation to the value of the asset as a whole? What is the useful life of the expenditure? One other point, 1972 issue,, family Expenses on Disposition In Avis difference between for purposes of making the disposition and facilitating expenses Reserves To provide some relief in these situations, subparagraph 40(1)(a)(iii) allows a taxpayer to claim a reasonable reserve, which has the effect of deferring the recognition (and taxation) of a portion of the gain to a future year. Generally speaking, this provision requires the taxpayer to recognize the greater of: (a) 20% of the total gain and (b) the proportion of the proceeds actually received in the year. The general one is five years