IFITC Chapter_7_2012.pptVIP

Options (Exhibit 7-1) * Convertible Properties Conversion is deemed not to have been a disposition of property ACB of shares = ACB of convertible property No cash consideration can be received * Capital Gains Deferral Individuals can defer recognition of capital on certain small business investments Must use proceeds from the sale of small business investment to acquire other small business investments Deferred gain reduces ACB of new investment * Non-Arm’s Length Transfers Non-arm’s length rules prevent tax avoidance in certain transactions Who does not deal at arm’s length? Related persons A beneficiary, or anyone not dealing at arm’s length with the beneficiary, and the inter vivos or testamentary trust It is a question of fact * Non-Arm’s Length Transactions Rules(Exhibit 7-2) * Attribution Rules Capital gains on spousal transfers or loans Attributed back to the transferor spouse or common-law partner * Transfers or Loans of Property to Spouse/Common-law Partner (A) Proceeds and Cost on Transfer Transaction Transferor’s proceeds Transferee’s cost Gift No election out of interspousal rollover Transferor’s ACB/UCC Transferor’s ACB/UCC Elect not to have rollover FMV [par. 69(1)(b)] FMV [par. 69(1)(c)] (2) Sale No election out of interspousal rollover Transferor’s ACB/UCC Transferor’s ACB/UCC Elect not to have rollover Greater of: Actual proceeds FMV [ssec. 69(1)] Lesser of: Actual cost FMV [ssec. 69(1)] * Transfers or Loans of Property to Spouse/Common-Law Partner (B) Attribution of Income and Capital Gains Business Income Property Income Capital Gains On transferred or loaned property and substitute property n/a Attributed [ssec. 74.1(1)] Attributed [ssec. 74.2] * Avoiding Income Attribution on Transferred Property Subsection 74.5(1) – FMV Transfer FMV consideration must be received by the vendor. If part of the consideration is debt, then interest must be charge at the prescribed rate and always paid by January 30 of the following year. If it is a t