PRINCIPAL RESIDENCE EXEMPTION
It is noted on Page 42 of CCRA’s Capital Gains Guide (T4037) that the amount of land that is considered as a tax free principal residence on disposition is usually limited to one-half hectare (1.24 acres). However, if a taxpayer can show that more land was needed to use and enjoy the property, that amount is eligible as a principal residence. For example, if the minimum lot size imposed by a municipality at the time you bought the property is larger than one-half hectare.
CAPITAL DIVIDEND ACCOUNT (CDA)
If a corporation had taxable capital gains in the three preceding years, the corporation may trigger a capital loss on its loser investments in the current year to be carried back against those taxable capital gains. However, it is important to remember to pay out the CDA on the capital gain before the capital loss is triggered. For example, if a corporation had a capital gain in 2000 of $100, taxable capital gain of $75 and CDA of $25, it is important to elect to pay the tax free $25 CDA before a capital loss is triggered in 2003 which effectively negates the CDA if the CDA is not paid out before triggering the capital loss.
SHAREHOLDER AGREEMENT - DEEMED CONTROL/DEEMED ASSOCIATION
The Income Tax Act extends the control and association concepts to situations where a shareholder has a right under a contract, in equity or otherwise, either immediately or in the future and either
absolutely or contingently to acquire shares... He/she will be deemed to have owned those shares unless the right is under a death, bankruptcy or permanent disability.
In a January 7, 2003 Technical Interpretation, CCRA reviewed a situation where the shares of OPCO were owned by Corporations A, B and C which were subject to the following “cash-call provision”.
1.Under certain circumstances OPCO can issue a demand for cash to each shareholder in proportion to its shareholdings;
2.If a shareholder fails to advance the funds, another shareholder may advance the funds;
3.If the defaulting shareholder fails to repay the advancing shareholder within 90 days, the advancing shareholder may cause OPCO to proportionately reduce the defaulting shareholder’s shareholdings in OPCO.
CCRA concluded that each corporation would be deemed to own all the shares of the other corporation for control and association purposes.
FEBRUARY 18, 2003 FEDERAL BUDGET
On February 18, 2003, the Honourable John Manley, Minister of Finance, presented his first Budget to the House of Commons.
Some of the more important tax changes
Child Disability Benefit
A $1,600 Child Disability Benefit (CDB) for children who meet the criteria for the disability tax credit (DTC).
Medical Expense Tax Credit
New eligible medical expenses including:
Real-time captioning for individuals with a speech or hearing impairment;
Note-taking services used by individuals with mental or physical impairments and the cost of voice recognition software used by individuals with a physical impairment as certified by a medical practitioner; and
The incremental cost associated with the purchase of gluten-free food for individuals with celiac disease.
Registered Pension Plan (RPP) and Registered Retirement Savings Plan (RRSP) Limits
The money purchase RPP limit will be increased to $15,500 for 2003, $16,500 for 2004 and $18,000 for 2005.
The RRSP limit will be increased to $14,500 for 2003, $15,500 for 2004, $16,500 for 2005 and $18,000 for 2006.
Small Business Deduction
The small business deduction reduces the basic federal corporate income tax rate to 12 per cent for the first $200,000 of active business income of a Canadian-controlled private corporation (CCPC).
The annual amount of active business income eligible for the reduced 12-per-cent tax rate will be increased to $225,000 (year 2003); to $250,000
2003 SECOND QUARTERISSUE NO. 62PAGE 3
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