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Capital Gain

 

 

 

 

   All sellers must pay tax on 50% of the net profit gained from proceeds of sale of their investment property to the government as the Capital Gain tax or if other conditions exist it would be treated as business income and all the profit is taxable ( see below).

 The primary residence is not subject to the Capital Gain tax in Canada so if you own a property and you live in it you don't have to be worried about the Capital Gain tax but if you own more than one property the non residing property might be the subject of the capital gain tax once it's sold and 50% of the net profit will be added to your income for that tax year, for instance if you bought a property for $ 200,000 5 years ago and now you sell that for $ 300,000 that $ 100,000 profit must be reported as the capital gain for the tax purposes and half that amount ( $ 50,000) is taxable.

If you have any question about the Capital Gain you should consult your Tax Attorney.

 

 

 

BUSINESS INCOME VS. CAPITAL GAINS

· The distinction between whether a transaction is on account of business or on account of capital is important because business income gets included in income at 100% whereas capital gains are only included in income at 50%. · Capital property provides long-term benefits to the company, and the property is used to produce income , Taxpayers would want to report losses as on account of business and gains on account of capital to minimize tax payable

Factors to Determine Business Income vs. Capital Gains

The following factors are used by the CRA and the courts in deciding whether a transaction is business income or capital gain

1. Is the transaction in question similar to the taxpayer’s normal business?  If the transaction is similar to the normal course of business, it may be considered business income

2. How frequently does the taxpayer engage in this transaction ,The higher the frequency of the transaction in question; the more likelihood that CRA will consider it on account of business

3. Is this transaction an adventure or concern in the nature of trade , Income from an adventure or concern in the nature of trade is treated like business income , Adventure in the nature of trade is a something done once in a while and not over a period of years as a business activity , The following factors are used to determine if the transaction is an adventure or concern in the nature of trade:

1) Whether the taxpayer dealt with the property in the same way as a dealer ordinarily would deal with it;  Dealers generally advertise, do research, and make improvements to their products § The following factors give evidence of that you were acting like a dealer: - If efforts were made to find a buyer quickly

- If sale took place in a short period of time - The taxpayer took steps to improve the marketability of the property (i.e. renovate a house before selling) - If the taxpayer has educational or professional background in the item he is selling A real-estate agent who buys a home under his name and quickly sells it will be treated as business income

2) Whether the nature and quantity of the property excludes the possibility that its sale was of a capital nature , Nature is such that this property cannot produce income or personal enjoyment and it was only purchased to be sold later

3) Whether the taxpayer's intention is consistent with other evidence pointing to a trading motivation  Intention is not enough by itself to determine if a taxpayer was involved in an adventure in the nature of trade § However, if at least one of the 2 tests above suggests that the taxpayer is involved in an adventure in the nature of trade, and if the taxpayer's intention was to sell the property at the first suitable opportunity; the transactions would be on account of business ,Taxpayer may have more than one intention when a property is acquired. If the primary intention is said to be the holding of the property as an investment (capital), CRA considers if there was a secondary intention to sell the property if the primary intention could not be fulfilled i. CRA considers if there is little likelihood of the property being retained by the taxpayer because of a lack of financial resources or for some other reason. ii. Further, a taxpayer's intentions are not limited to the purposes for acquiring the property but extend to the time at which the disposition was made.

Court Case Example : Frederick Simon Hawa v Her Majesty The Queen, 2006 TCC 612 (TCC)

Case Facts

§ Mr. Hawa trades shares and In 2001 he made 151 purchases of stocks in 16 companies through two brokers, mainly TD Waterhouse , The stock was generally held for short periods of time. § Mr. Hawa incurred losses on these shares, and wanted to report these losses as business income

Judgement:

 The court ruled that these losses are business losses and not capital losses o The judge stated that “here the volume of trades, the rapidity of turnover and the appellant's own testimony that he was buying and selling shares to realize a profit indicate that the concerted activity of the appellant was clearly the carrying on of a business.

Disposing Canadian Securities

 If you dispose of Canadian securities, you may have an income gain or loss. However, in the year you dispose of Canadian securities, you can elect to report your gain or loss as a capital gain or loss. § If you make this election for a tax year, CRA will consider every Canadian security you owned in that year and later years to be capital properties.  A trader or dealer in securities or anyone who was a non-resident of Canada when the security was sold cannot make this election.

 

                               

 

          2017 Tax Rates

Federal tax rates for 2017

  • 15% on the first $45,916 of taxable income, +
  • 20.5% on the next $45,915 of taxable income (on the portion of taxable income over $45,916 up to $91,831), +
  • 26% on the next $50,522 of taxable income (on the portion of taxable income over $91,831 up to $142,353), +
  • 29% on the next $60,447 of taxable income (on the portion of taxable income over $142,353 up to $202,800), +
  • 33% of taxable income over $202,800.
 
 
BC Tax Rates 2017

5.06% on the first $38,898 of taxable income, +
7.7% on the next $38,899, +
10.5% on the next $11,523, +
12.29% on the next $19,140, +
14.7% on the amount over $108,460

 

 

 

 

 

 

                    The followings are the Federal and Provincial tax rates for the 2014 tax year


 

 

Federal tax rates for 2014

  • 15% on the first $43,953 of taxable income, +
  • 22% on the next $43,954 of taxable income (on the portion of taxable income over $43,953 up to $87,907), +
  • 26% on the next $48,363 of taxable income (on the portion of taxable income over $87,907 up to $136,270), +
  • 29% of taxable income over $136,270

 

BC Personal Income Tax Brackets and Rates - 2014 Tax Year

Taxable Income - 2014 Brackets Tax Rate
$0 to $37,606 5.06%
$37,606.01 to $75,213 7.70%
$75,213.01 to $86,354 10.50%
$86,354.01 to $104,858 12.29%
$104,858.01 to $150,000 14.70%
Over $150,000 16.80%

Tax rates are applied on a cumulative basis. For example, if your taxable income is more than $37,606, the first $37,606 of taxable income is taxed at 5.06%, the next $37,607 of taxable income is taxed at 7.70%, the next $11,141 is taxed at 10.5%, the next $18,504 of taxable income is taxed at 12.29%, the next $45,142 of taxable income is taxed at 14.70% and any taxable income over $150,000 is taxed at 16.80%.

 

Federal tax rates for 2013

  • 15% on the first $43,561 of taxable income, +
  • 22% on the next $43,562 of taxable income (on the portion of taxable income over $43,561 up to $87,123), +
  • 26% on the next $47,931 of taxable income (on the portion of taxable income over $87,123 up to $135,054), +
  • 29% of taxable income over $135,054.

The chart below reproduces the first calculation that has to be made on page 2 of Schedule 1 of the tax package to calculate net federal tax. Page 1 is used to calculate federal non-refundable tax credits.

Federal tax on taxable income manual calculation chart
 

Use this column if your taxable income is $43,561 or less

Use this column if your taxable income is more than $43,561, but not more than $87,123

Use this column if your taxable income is more than $87,123, but not more than $135,054

Use this column if your taxable income is more than $135,054

 
Enter your taxable income from line 260 of your return        

1

Base amount −        0

−     43,561

−    87,123

−  135,054

2

Line 1 minus line 2 (this amount cannot be negative) = = = =

3

Federal tax rate ×    15% ×      22% ×      26% ×      29%

4

Multiply the amount on line 3 by the tax rate on line 4 = = = =

5

Tax on the amount from line 2 +       0

+      6,534

+    16,118

+    28,580

6

Add lines 5 and 6 = = = =

7



 

Provincial/territorial tax rates for 2013

Tax for all provinces (except Quebec) and territories is calculated the same way as federal tax.

Form 428 is used to calculate this provincial or territorial tax. Provincial or territorial specific non-refundable tax credits are also calculated on Form 428.

For complete details, see the provincial or territorial information and forms in your 2013 tax package.

Provincial/territorial tax rates (combined chart)
Provinces/territories Rate(s)
Newfoundland and Labrador 7.7% on the first $33,748 of taxable income, +
12.5% on the next $33,748, +
13.3% on the amount over $67,496
Prince Edward Island 9.8% on the first $31,984 of taxable income, +
13.8% on the next $31,985, +
16.7% on the amount over $63,969
Nova Scotia 8.79% on the first $29,590 of taxable income, +
14.95% on the next $29,590, +
16.67% on the next $33,820, +
17.5% on the next $57,000, +
21% on the amount over $150,000
New Brunswick 9.1% on the first $38,954 of taxable income, +
12.1% on the next $38,954, +
12.4% on the next $48,754, +
14.3% on the amount over $126,662
Quebec Go to Income tax rates (Revenu Québec Web site).
Ontario 5.05% on the first $39,723 of taxable income, +
9.15% on the next $39,725, +
11.16% on the next $429,552, +
13.16 % on the amount over $509,000
Manitoba 10.8% on the first $31,000 of taxable income, +
12.75% on the next $36,000, +
17.4% on the amount over $67,000
Saskatchewan 11% on the first $42,906 of taxable income, +
13% on the next $79,683, +
15% on the amount over $122,589
Alberta 10% of taxable income
British Columbia 5.06% on the first $37,568 of taxable income, +
7.7% on the next $37,570, +
10.5% on the next $11,130, +
12.29% on the next $18,486, +
14.7% on the amount over $104,754
Yukon 7.04% on the first $43,561 of taxable income, +
9.68% on the next $43,562, +
11.44% on the next $47,931, +
12.76% on the amount over $135,054
Northwest Territories 5.9% on the first $39,453 of taxable income, +
8.6% on the next $39,455, +
12.2% on the next $49,378, +
14.05% on the amount over $128,286
Nunavut 4% on the first $41,535 of taxable income, +
7% on the next $41,536, +
9% on the next $51,983, +
11.5% on the amount over $135,054

Tax rates are applied on a cumulative basis. If your taxable income is more than $35,859 the first $35,859 of taxable income is taxed at 5.06%, the next $35,860 of taxable income is taxed at 7.70%, the next $10,623 is taxed at 10.5%, the next $17,645 of taxable income is taxed at 12.29% and any taxable income over $99,987 is taxed at 14.7%.

 

 

 

 

 

Tax Rates are also available for:

2010 || 2009 || 2008 || 2007 || 2006 || Other Years

 



 

 

 

 

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