Canadian Tax Principles, 2022-
n n n
2023, Vol 2 (Byrd/Chen) (Answers at the end of eac
n n n n n n n n n
h chapter)
n
Chaptern11
11.1n Onlinen Exercises
1) ITAn110.2 nprovides nforna ndeduction nofn"lump-
sum npayments",nfornexamplena ncourtnorderedntermination nbenefit.nWhatntaxnpolicynobjectivenis nservednb
ynthis nprovision?
Answer:nSuch nlump-
sum npayments noften nreflectncompensation nfornservices nrenderednovernseveralnyears.nThenfactnthatnitnis nrecei
vednin na nsinglenyearncan nresultnin nsignificantnportions nofnitnbeingnsubjectntonincomentaxnrates nhighernthan nw
ouldnhavenbeen nthencasenhadnitnbeen nreceivednovernthenseveralnyears nduringnwhich nitnwas nearned.nThendedu
ction nofnsuch namounts nprovides nthenbasis nfornan nalternativenincomentaxnpayablencalculation nwhich nattempt
s ntonadjustnthenamountnpaidntonthenamountnthatnwouldnhavenbeen npaidnifnthenamountnhadnactuallynbeen nre
ceivednovernseveralnyears.nThenobjectivenofnsuch nprovisions nis nfairness nornequity.
Type:nES
Topic:n Lump-sum npaymentsn-nITAn110.2
2) Thencarryovernperiods nfornlosses nvaries nwith nthentypenofnloss.nBrieflyndescribenthencarryovernperiods nth
atnthenITAnprovides nfornthentypes nofnlosses nthatnitnidentifies.
Answer:nThencarryovernperiods nfornthenvarious ntypes nofnlosses nidentifiednin nthenIncomenTax nActnandnc
overednin nthentextnupntonChaptern11 narenas nfollows:
• Non-
CapitalnLosses nandnFarm nLosses n(includingnrestrictednfarm nlosses):n20 nyears nforwardnandn3 nyears nback.
• NetnCapitalnLoss:nUnlimitednforwardnandn3 nyears nback
• ListednPersonalnPropertynLosses:n7 nyears nforwardnandn3 nyears nback.
• AllowablenBusiness nInvestmentnLosses:n10 nyears,nas na nnon-
capitalnloss nthen nconvertedntonnetncapitalnloss nwith nunlimitedncarrynforwardnin nyearn11.
• Foreign nTaxnCredits:n10 nyears nforwardnandn3 nyears nback.
Coverednin nChaptern18 narenlimitednpartnershipnlosses.nTheynhavennoncarrynbacknandnan nunlimitedncarrynfor
ward,nbutnonlynagainstnthenpartnershipnincomentonwhich ntheynrelate.
Type:nES
Topic:n Lossncarry noversn-ngeneral nconcepts
3) When na nbusiness nhas nseveralntypes nofnloss ncarrynovers,nwhynis nitnnecessaryntonkeepnseparatenbalances nf
orneach ntype?
Answer:nTherenarentwonreasons nfornhavingntontrackneach ntypenofnloss ncarrynforwardnseparately.nFirst,ndiff
erentntypes nofnlosses nhavendifferentncarryovernperiods n(e.g.,n20 nyears nfornfarm nlosses nvs.nunlimitednforncapi
talnlosses).nSecond,nsomentypes nofnlosses ncan nonlynbenappliednagainstnthenequivalentntypenofnincomen(e.g.,
ncapital nlosses ncan nonlynbencarriednovernandnappliednagainstncapital ngains).
Type:nES
Topic:n Lossncarry noversn-ngeneral nconcepts
, 4) Taxnadvisors nwillnnormallynrecommendnthatnloss ncarrynovers nnotnbenusedntonreducentaxablenincomentonn
ilnfornan nindividual.nWhatnis nthenbasis nfornthis nrecommendation?
Answer:nThis nrecommendation nreflects nthenfactnthatnmostnpersonalntaxncredits narennon-
refundablenandncannotnbencarriednoverntonothernyears.nThis nmeans nthat,nunless nan nindividual ntaxpayernhas nt
axablenincomenandnfederalnincomentaxnpayable,nthenvaluenofnthesencredits nis nsimplynlost.nThis,nin neffect,nis n
whatnwouldnhappen nifnvarious ntypes nofnloss ncarrynovers nwerenusedntonreducentaxablenincomentonnil.
Type:nES
Topic:n Lossncarry noversn-nindividual
5) Brieflyndescribenthenincomentaxntreatmentnofnlosses non nlistednpersonalnproperty.
Answer:n Losses non nlistednpersonalnpropertyncan nbendeductednduringnthencurrentnyear,nbutnonlynagainstnne
tngains non nlistednpersonalnpropertynfornthenyear.nIfnthenloss ncannotnbenusednduringnthencurrentnyear,nitncan n
bencarriednbacknthreenyears nornforwardnseven nyears.
Type:nES
Topic:n Lossesn-nlistednpersonal nproperty
6) Ifna ntaxpayernhas nboth nnetncapitalnandnnon-
capitalnlosses nandndoes nnotnhavensufficientnincomenin nthencurrentnandnprevious nyears ntonclaim nthesena
mounts,nwhich ntypenofnloss nshouldnbendeductednfirst?nAnswer:nTherenis nnonclearncutnanswerntonthis nq
uestion.nNetncapitalnlosses nhavenan nunlimitednlifenbutncan nonlynbencarriednoverntonthenextentnofnnetntax
ablencapitalngains nin nthencarrynovernperiod.
This nwouldnsuggestnthat,nifnnetntaxablencapitalngains narenpresentnin nthencurrentnyear,nthenusenofnnetncapitaln
losses nshouldnreceivenpriority.nThis nwouldnbenparticularlyntruenifnadditionalnnetntaxablencapitalngains naren
notnexpectednin nfuturenyears.nIn ncontrast,nnon-
capitalnlosses ncan nbendeductednagainstnanyntypenofnincome.nHowever,nthendownsidenherenis nthatntheirncarr
ynforwardnperiodnis nlimitednton20 nyears.nWhilennonfirm nconclusion nis navailable,nin nmostncases nthenlengthyn
carrynforwardnperiodnfornnon-
capitalnlosses,nwouldnsuggestnusingnnetncapitalnlosses nfirst.nHowever,nthis ntentativenconclusion nwouldnbenal
terednifnthentaxpayerncommonlynhas nnetntaxablencapitalngains.
Type:nES
Topic:n Lossncarry noversn-ngeneral nconcepts
7) John nBroleynhas na n2021 n$50,000 nnon-
capitalnloss nandna n$50,000 n2021 nnetncapitalnloss.nIn n2022 nhisnonlynincomenis na n$50,000ntaxablencapitalng
ain.
Henhas naskednyournadvicenas ntonwhich nofnthentwonloss ncarrynforwards nhenshouldnclaim.nWhatnadvicenwouldn
youngivenhim?
Answer:nThendifferencenbetween nthentwonloss ncarrynforwards nis nthatnthennon-
capitalnloss nbalancenis ntimenlimitednandnwillnexpirenatnthenendnofn20 nyears.nIn ncontrast,nthennetncapitalnloss n
willnnevernexpirenbutncan nonlynbenappliednagainstnnetntaxablencapitalngains.nIfnMr.nBroleynis nconcernednabo
utnhavingnsufficientnincomentonusenthennon-
capitalnloss nin nthentimenremainingnuntilnitnexpires,nhenshouldnclaim nthatnloss.
Alternatively,nifnhenfeels nthatnhenis nlikelyntonhavensufficientnincomenin nthatnperiod,nbutn thatnhenis nunlikelynton
havenfurtherncapitalngains,nhenshouldnclaim nthennetncapitalnloss.nTherenis nnonclearnanswerntonthis nquestion nas n
itninvolves nestimates naboutnthenfuture.
Type:nES
Topic:n Lossncarry noversn-ngeneral nconcepts
, 8) Ifnan nindividual ndies nandnhas na nnetncapitalnloss nin nthenyearnofnthendeath nornunusednnetncapitalnlosses nfro
m nprevious nyears,nth esenbalances narensubjectntona ndifferentntreatmen tnthan nwouldnbenthencasenifnthenindivi
dualnwerenstillnalive.nBrieflyndescribenhownthis ntreatmentnis ndifferent.
Answer:
ITAn111(2)ncontains na nspecialnprovision nwith nrespectntonboth nnetncapitalnlosses nfrom nyears npriornt
ondeath nandntonnetncapitalnlosses narisingnin nthenyearnofndeath.nEssentially,nthis nprovision nallows nthesenloss nb
alances ntonbenappliednagainstnanyntypenofnincomenin nthenyearnofndeath,nornthenimmediatelynprecedingnyear,na
s nlongnas nthencapitalngains ndeduction nhas nnotnbeen nclaimed.nIfnthencapitalngains ndeduction nhadnbeen nclaimed
nin nprevious nyears nthen nthennetncapital nlosses nthatncan nbenclaimednagainstnanyntypenofnincomenwill nbenreduc
ed.
Type:nES
Topic:n Lossesn-nnetncapital nlossesnatndeath
9) Whatnis nan nAllowablenBusiness nInvestmentnLoss n(ABIL)?nWhatnspecialntaxnprovisions narenassociate
dnwith nthis ntypenofnloss?
Answer:nAn nAllowablenBusiness nInvestmentnLoss n(ABIL)nis nthendeductiblenportion nofna ncapitalnloss nresul
tingnfrom nthendisposition nofnshares norndebtnofna nsmallnbusiness ncorporation.nThenspecialnprovisions nassoci
atednwith nthis ntypenofnloss nare:
• Itncan nbendeductednagainstnanyntypenofnincomenin nthenyearnin nwhich nitnoccurs.
• Tonthenextentnitncannotnbenfullynusednitnbecomes npartnofna nnon-
capitalnloss nfornthatnyearnandncan nbencarriednoverntonothernyears nas na nnon-
capitalnloss nforn10 nyears nafternwhich nitnbecomes npartnofna nnetncapitalnloss nforntheneleventh nyear.
• Itnis ndisallowednas nan nABILn(i.e.,nitnbecomes na nregularnallowablencapitalnloss),ntonthenextentnthatnt
henindividual nhas npreviouslynusednthencapitalngains ndeduction.
• Thenrealization nofnan nABILnreduces nthenannualngains nlimitnthatnis nusedntondeterminenthenmaximu
m ncapitalngains ndeduction nfornthenyear.
Type:nES
Topic:n Allowable nbusinessninvestmentnlosses
10 ) Whatnis na nSmallnBusiness nCorporation nas ndefinednin nthenITA?
Answer:nAnsmallnbusiness ncorporation nis ndefinednin nITAn248(1)nas na nCanadian ncontrollednprivatencorpor
ation n(CCPC)nofnwhich n"allnornsubstantiallynall",nofnthenFMVnofnits nassets narenusednin nan nactivenbusiness nc
arriednon n"primarily"nin nCanada.nThenterm n"substantiallynall"ngenerallynmeans n90%nornmore,nwhilen"prim
arily"nis ngenerallyninterpretedntonmean nmorenthan n50%.
Type:nES
Topic:n Small nbusinessncorporationn-nITAn248(1)
, 11 ) With nrespectntonthendeductibilitynofntheirnlosses,nfarmers nfallnintonthreencategories.nWhatnarenthesenthre
encategories nandnhownarenlosses ntreatednin neach ncategory?
Answer:n Thenthreencategories,nalongnwith nthentreatmentnofntheirnlosses,narenas nfollows:
HobbynFarmern-
nThis nis nan nindividual nwhonruns na nfarmingnoperation non na npartntimenbasis nas nanhobbynornas na nwaynofnenhan
cingnhis nornhernlifestyle.nThenoperation nhas nnonreasonablenexpectation nofna nprofitnandnthereforenitnis nnotna nb
usiness nandnnotna nsourcenofnincome.nAs na nresultnits nlosses narennotnrecognizednfornincomentaxnpurposes.
PartnTimenFarmern-
nThis nis nan nindividual nfornwhom nfarmingnis nsubordinatentonsomenothernsourcenofnincome.nHowever,nifnthere
nis na nreasonablenexpectation nofna nprofitnandnthereforena nbusiness,nthenindividual nfarmernis nallowedntondeduc
tna nportion nofntheirnfarm nlosses.nIn neach nyear,nthenportion nofnthenfarm nloss nthatncan nbendeductednagainstnany
nsourcenofnincomenis nlimitedntonthenfirstn$2,500,nplus none-halfnofnthennext
$30,000,ntona nmaximum namountnofn$17,500.nLosses nin nexcess nofnthis ndeductiblenamountnarenreferredntonas nr
estrictednfarm nlosses nand,nwhen ntheynarencarriednoverntonearliernornlaternyears,ntheyncan nonlynbendeductednt
onthenextentnofnanynfarm nincomenin nthatnyear.
FullnTimenFarmern-
nThis nis nan nindividual nfornwhom nfarmingnis ntheirnprincipal nsourcenofnincomenandnactivity.nFornthis ncategor
ynofnfarmer,nfarm nlosses narenfullyndeductiblenagainstnanynother nsourcenofnincome.nType:nES
Topic:n Lossesn-nfarming
12 ) Thencapitalngains ndeduction nis navailablenwhen nan nindividual ntaxpayernhas na ngain non nthendisposition n
ofnshares nin na n"qualifiednsmallnbusiness ncorporation"n(QSBCnshares).nWhatnarenthenconditions nthatnmustn
benmetnfornthenshares ntonqualifynas nQSBCnshares?
Answer:nIn norderntonbenshares nofna nQSBCnfornthenpurposes nofnthencapitalngains ndeduction,nthencorporation
nmustnbena n"small nbusiness ncorporation" natnthentimenofnthendisposition nofnthenshares.nThis nmeans nthatnsub
stantiallynalln(90%nornmore)nofnthenFMVnofnits nassets nmustnbenusedntonproducenactivenbusiness nincome,npri
marilyn(morenthan n50%)nin nCanada.nIfnthensmallnbusiness ncorporation ntestnis nmet,ntwonothernconditions nm
ustnbenmetnfornthenshares ntonqualify.
Thesenarenas nfollows:
• thenshares nmustnnotnbenownednbynanyonenothernthan nthenindividual norna nrelatednperson nfornatnleastn
24 nmonths nprecedingnthendisposition;nand
• throughoutnthatn24 nmonth nperiod,nmorenthan n50%nofnthenFMVnofnthencorporation's nassets nmustnbenusedni
n nan nactivenbusiness ncarriednon nprimarilynin nCanada.
Type:nES
Topic:n Capital ngainsndeductionn-nsharesnofnanQSBC
13 ) An nindividual nhas na ncapitalngain non nqualifiednfarm npropertyn(QFP).nThenindividual nhas nnonotherncapit
alngains nduringnthenyear.nExplain nhownthenannualngains nlimitnwouldnbencalculatednin ndeterminingnthenind
ividual's ncapitalngains ndeduction nfornthenyear.
Answer:nIn nthesencircumstances,nthenannualngains nlimitnis nequalntonthentaxablencapitalngain non nthenQFP,nl
ess:
• Allowablencapitalnlosses nrealizednduringnthencurrentnyear.
• Netncapitalnloss ncarrynovers nfrom nprevious ndeductednin nthencurrentnyear.
• AllowablenBusiness nInvestmentnLosses nrealizednduringnthencurrent nyear.
Type:nES
Topic:n Capital ngainsndeductionn-nannual ngainsnlimit
n n n
2023, Vol 2 (Byrd/Chen) (Answers at the end of eac
n n n n n n n n n
h chapter)
n
Chaptern11
11.1n Onlinen Exercises
1) ITAn110.2 nprovides nforna ndeduction nofn"lump-
sum npayments",nfornexamplena ncourtnorderedntermination nbenefit.nWhatntaxnpolicynobjectivenis nservednb
ynthis nprovision?
Answer:nSuch nlump-
sum npayments noften nreflectncompensation nfornservices nrenderednovernseveralnyears.nThenfactnthatnitnis nrecei
vednin na nsinglenyearncan nresultnin nsignificantnportions nofnitnbeingnsubjectntonincomentaxnrates nhighernthan nw
ouldnhavenbeen nthencasenhadnitnbeen nreceivednovernthenseveralnyears nduringnwhich nitnwas nearned.nThendedu
ction nofnsuch namounts nprovides nthenbasis nfornan nalternativenincomentaxnpayablencalculation nwhich nattempt
s ntonadjustnthenamountnpaidntonthenamountnthatnwouldnhavenbeen npaidnifnthenamountnhadnactuallynbeen nre
ceivednovernseveralnyears.nThenobjectivenofnsuch nprovisions nis nfairness nornequity.
Type:nES
Topic:n Lump-sum npaymentsn-nITAn110.2
2) Thencarryovernperiods nfornlosses nvaries nwith nthentypenofnloss.nBrieflyndescribenthencarryovernperiods nth
atnthenITAnprovides nfornthentypes nofnlosses nthatnitnidentifies.
Answer:nThencarryovernperiods nfornthenvarious ntypes nofnlosses nidentifiednin nthenIncomenTax nActnandnc
overednin nthentextnupntonChaptern11 narenas nfollows:
• Non-
CapitalnLosses nandnFarm nLosses n(includingnrestrictednfarm nlosses):n20 nyears nforwardnandn3 nyears nback.
• NetnCapitalnLoss:nUnlimitednforwardnandn3 nyears nback
• ListednPersonalnPropertynLosses:n7 nyears nforwardnandn3 nyears nback.
• AllowablenBusiness nInvestmentnLosses:n10 nyears,nas na nnon-
capitalnloss nthen nconvertedntonnetncapitalnloss nwith nunlimitedncarrynforwardnin nyearn11.
• Foreign nTaxnCredits:n10 nyears nforwardnandn3 nyears nback.
Coverednin nChaptern18 narenlimitednpartnershipnlosses.nTheynhavennoncarrynbacknandnan nunlimitedncarrynfor
ward,nbutnonlynagainstnthenpartnershipnincomentonwhich ntheynrelate.
Type:nES
Topic:n Lossncarry noversn-ngeneral nconcepts
3) When na nbusiness nhas nseveralntypes nofnloss ncarrynovers,nwhynis nitnnecessaryntonkeepnseparatenbalances nf
orneach ntype?
Answer:nTherenarentwonreasons nfornhavingntontrackneach ntypenofnloss ncarrynforwardnseparately.nFirst,ndiff
erentntypes nofnlosses nhavendifferentncarryovernperiods n(e.g.,n20 nyears nfornfarm nlosses nvs.nunlimitednforncapi
talnlosses).nSecond,nsomentypes nofnlosses ncan nonlynbenappliednagainstnthenequivalentntypenofnincomen(e.g.,
ncapital nlosses ncan nonlynbencarriednovernandnappliednagainstncapital ngains).
Type:nES
Topic:n Lossncarry noversn-ngeneral nconcepts
, 4) Taxnadvisors nwillnnormallynrecommendnthatnloss ncarrynovers nnotnbenusedntonreducentaxablenincomentonn
ilnfornan nindividual.nWhatnis nthenbasis nfornthis nrecommendation?
Answer:nThis nrecommendation nreflects nthenfactnthatnmostnpersonalntaxncredits narennon-
refundablenandncannotnbencarriednoverntonothernyears.nThis nmeans nthat,nunless nan nindividual ntaxpayernhas nt
axablenincomenandnfederalnincomentaxnpayable,nthenvaluenofnthesencredits nis nsimplynlost.nThis,nin neffect,nis n
whatnwouldnhappen nifnvarious ntypes nofnloss ncarrynovers nwerenusedntonreducentaxablenincomentonnil.
Type:nES
Topic:n Lossncarry noversn-nindividual
5) Brieflyndescribenthenincomentaxntreatmentnofnlosses non nlistednpersonalnproperty.
Answer:n Losses non nlistednpersonalnpropertyncan nbendeductednduringnthencurrentnyear,nbutnonlynagainstnne
tngains non nlistednpersonalnpropertynfornthenyear.nIfnthenloss ncannotnbenusednduringnthencurrentnyear,nitncan n
bencarriednbacknthreenyears nornforwardnseven nyears.
Type:nES
Topic:n Lossesn-nlistednpersonal nproperty
6) Ifna ntaxpayernhas nboth nnetncapitalnandnnon-
capitalnlosses nandndoes nnotnhavensufficientnincomenin nthencurrentnandnprevious nyears ntonclaim nthesena
mounts,nwhich ntypenofnloss nshouldnbendeductednfirst?nAnswer:nTherenis nnonclearncutnanswerntonthis nq
uestion.nNetncapitalnlosses nhavenan nunlimitednlifenbutncan nonlynbencarriednoverntonthenextentnofnnetntax
ablencapitalngains nin nthencarrynovernperiod.
This nwouldnsuggestnthat,nifnnetntaxablencapitalngains narenpresentnin nthencurrentnyear,nthenusenofnnetncapitaln
losses nshouldnreceivenpriority.nThis nwouldnbenparticularlyntruenifnadditionalnnetntaxablencapitalngains naren
notnexpectednin nfuturenyears.nIn ncontrast,nnon-
capitalnlosses ncan nbendeductednagainstnanyntypenofnincome.nHowever,nthendownsidenherenis nthatntheirncarr
ynforwardnperiodnis nlimitednton20 nyears.nWhilennonfirm nconclusion nis navailable,nin nmostncases nthenlengthyn
carrynforwardnperiodnfornnon-
capitalnlosses,nwouldnsuggestnusingnnetncapitalnlosses nfirst.nHowever,nthis ntentativenconclusion nwouldnbenal
terednifnthentaxpayerncommonlynhas nnetntaxablencapitalngains.
Type:nES
Topic:n Lossncarry noversn-ngeneral nconcepts
7) John nBroleynhas na n2021 n$50,000 nnon-
capitalnloss nandna n$50,000 n2021 nnetncapitalnloss.nIn n2022 nhisnonlynincomenis na n$50,000ntaxablencapitalng
ain.
Henhas naskednyournadvicenas ntonwhich nofnthentwonloss ncarrynforwards nhenshouldnclaim.nWhatnadvicenwouldn
youngivenhim?
Answer:nThendifferencenbetween nthentwonloss ncarrynforwards nis nthatnthennon-
capitalnloss nbalancenis ntimenlimitednandnwillnexpirenatnthenendnofn20 nyears.nIn ncontrast,nthennetncapitalnloss n
willnnevernexpirenbutncan nonlynbenappliednagainstnnetntaxablencapitalngains.nIfnMr.nBroleynis nconcernednabo
utnhavingnsufficientnincomentonusenthennon-
capitalnloss nin nthentimenremainingnuntilnitnexpires,nhenshouldnclaim nthatnloss.
Alternatively,nifnhenfeels nthatnhenis nlikelyntonhavensufficientnincomenin nthatnperiod,nbutn thatnhenis nunlikelynton
havenfurtherncapitalngains,nhenshouldnclaim nthennetncapitalnloss.nTherenis nnonclearnanswerntonthis nquestion nas n
itninvolves nestimates naboutnthenfuture.
Type:nES
Topic:n Lossncarry noversn-ngeneral nconcepts
, 8) Ifnan nindividual ndies nandnhas na nnetncapitalnloss nin nthenyearnofnthendeath nornunusednnetncapitalnlosses nfro
m nprevious nyears,nth esenbalances narensubjectntona ndifferentntreatmen tnthan nwouldnbenthencasenifnthenindivi
dualnwerenstillnalive.nBrieflyndescribenhownthis ntreatmentnis ndifferent.
Answer:
ITAn111(2)ncontains na nspecialnprovision nwith nrespectntonboth nnetncapitalnlosses nfrom nyears npriornt
ondeath nandntonnetncapitalnlosses narisingnin nthenyearnofndeath.nEssentially,nthis nprovision nallows nthesenloss nb
alances ntonbenappliednagainstnanyntypenofnincomenin nthenyearnofndeath,nornthenimmediatelynprecedingnyear,na
s nlongnas nthencapitalngains ndeduction nhas nnotnbeen nclaimed.nIfnthencapitalngains ndeduction nhadnbeen nclaimed
nin nprevious nyears nthen nthennetncapital nlosses nthatncan nbenclaimednagainstnanyntypenofnincomenwill nbenreduc
ed.
Type:nES
Topic:n Lossesn-nnetncapital nlossesnatndeath
9) Whatnis nan nAllowablenBusiness nInvestmentnLoss n(ABIL)?nWhatnspecialntaxnprovisions narenassociate
dnwith nthis ntypenofnloss?
Answer:nAn nAllowablenBusiness nInvestmentnLoss n(ABIL)nis nthendeductiblenportion nofna ncapitalnloss nresul
tingnfrom nthendisposition nofnshares norndebtnofna nsmallnbusiness ncorporation.nThenspecialnprovisions nassoci
atednwith nthis ntypenofnloss nare:
• Itncan nbendeductednagainstnanyntypenofnincomenin nthenyearnin nwhich nitnoccurs.
• Tonthenextentnitncannotnbenfullynusednitnbecomes npartnofna nnon-
capitalnloss nfornthatnyearnandncan nbencarriednoverntonothernyears nas na nnon-
capitalnloss nforn10 nyears nafternwhich nitnbecomes npartnofna nnetncapitalnloss nforntheneleventh nyear.
• Itnis ndisallowednas nan nABILn(i.e.,nitnbecomes na nregularnallowablencapitalnloss),ntonthenextentnthatnt
henindividual nhas npreviouslynusednthencapitalngains ndeduction.
• Thenrealization nofnan nABILnreduces nthenannualngains nlimitnthatnis nusedntondeterminenthenmaximu
m ncapitalngains ndeduction nfornthenyear.
Type:nES
Topic:n Allowable nbusinessninvestmentnlosses
10 ) Whatnis na nSmallnBusiness nCorporation nas ndefinednin nthenITA?
Answer:nAnsmallnbusiness ncorporation nis ndefinednin nITAn248(1)nas na nCanadian ncontrollednprivatencorpor
ation n(CCPC)nofnwhich n"allnornsubstantiallynall",nofnthenFMVnofnits nassets narenusednin nan nactivenbusiness nc
arriednon n"primarily"nin nCanada.nThenterm n"substantiallynall"ngenerallynmeans n90%nornmore,nwhilen"prim
arily"nis ngenerallyninterpretedntonmean nmorenthan n50%.
Type:nES
Topic:n Small nbusinessncorporationn-nITAn248(1)
, 11 ) With nrespectntonthendeductibilitynofntheirnlosses,nfarmers nfallnintonthreencategories.nWhatnarenthesenthre
encategories nandnhownarenlosses ntreatednin neach ncategory?
Answer:n Thenthreencategories,nalongnwith nthentreatmentnofntheirnlosses,narenas nfollows:
HobbynFarmern-
nThis nis nan nindividual nwhonruns na nfarmingnoperation non na npartntimenbasis nas nanhobbynornas na nwaynofnenhan
cingnhis nornhernlifestyle.nThenoperation nhas nnonreasonablenexpectation nofna nprofitnandnthereforenitnis nnotna nb
usiness nandnnotna nsourcenofnincome.nAs na nresultnits nlosses narennotnrecognizednfornincomentaxnpurposes.
PartnTimenFarmern-
nThis nis nan nindividual nfornwhom nfarmingnis nsubordinatentonsomenothernsourcenofnincome.nHowever,nifnthere
nis na nreasonablenexpectation nofna nprofitnandnthereforena nbusiness,nthenindividual nfarmernis nallowedntondeduc
tna nportion nofntheirnfarm nlosses.nIn neach nyear,nthenportion nofnthenfarm nloss nthatncan nbendeductednagainstnany
nsourcenofnincomenis nlimitedntonthenfirstn$2,500,nplus none-halfnofnthennext
$30,000,ntona nmaximum namountnofn$17,500.nLosses nin nexcess nofnthis ndeductiblenamountnarenreferredntonas nr
estrictednfarm nlosses nand,nwhen ntheynarencarriednoverntonearliernornlaternyears,ntheyncan nonlynbendeductednt
onthenextentnofnanynfarm nincomenin nthatnyear.
FullnTimenFarmern-
nThis nis nan nindividual nfornwhom nfarmingnis ntheirnprincipal nsourcenofnincomenandnactivity.nFornthis ncategor
ynofnfarmer,nfarm nlosses narenfullyndeductiblenagainstnanynother nsourcenofnincome.nType:nES
Topic:n Lossesn-nfarming
12 ) Thencapitalngains ndeduction nis navailablenwhen nan nindividual ntaxpayernhas na ngain non nthendisposition n
ofnshares nin na n"qualifiednsmallnbusiness ncorporation"n(QSBCnshares).nWhatnarenthenconditions nthatnmustn
benmetnfornthenshares ntonqualifynas nQSBCnshares?
Answer:nIn norderntonbenshares nofna nQSBCnfornthenpurposes nofnthencapitalngains ndeduction,nthencorporation
nmustnbena n"small nbusiness ncorporation" natnthentimenofnthendisposition nofnthenshares.nThis nmeans nthatnsub
stantiallynalln(90%nornmore)nofnthenFMVnofnits nassets nmustnbenusedntonproducenactivenbusiness nincome,npri
marilyn(morenthan n50%)nin nCanada.nIfnthensmallnbusiness ncorporation ntestnis nmet,ntwonothernconditions nm
ustnbenmetnfornthenshares ntonqualify.
Thesenarenas nfollows:
• thenshares nmustnnotnbenownednbynanyonenothernthan nthenindividual norna nrelatednperson nfornatnleastn
24 nmonths nprecedingnthendisposition;nand
• throughoutnthatn24 nmonth nperiod,nmorenthan n50%nofnthenFMVnofnthencorporation's nassets nmustnbenusedni
n nan nactivenbusiness ncarriednon nprimarilynin nCanada.
Type:nES
Topic:n Capital ngainsndeductionn-nsharesnofnanQSBC
13 ) An nindividual nhas na ncapitalngain non nqualifiednfarm npropertyn(QFP).nThenindividual nhas nnonotherncapit
alngains nduringnthenyear.nExplain nhownthenannualngains nlimitnwouldnbencalculatednin ndeterminingnthenind
ividual's ncapitalngains ndeduction nfornthenyear.
Answer:nIn nthesencircumstances,nthenannualngains nlimitnis nequalntonthentaxablencapitalngain non nthenQFP,nl
ess:
• Allowablencapitalnlosses nrealizednduringnthencurrentnyear.
• Netncapitalnloss ncarrynovers nfrom nprevious ndeductednin nthencurrentnyear.
• AllowablenBusiness nInvestmentnLosses nrealizednduringnthencurrent nyear.
Type:nES
Topic:n Capital ngainsndeductionn-nannual ngainsnlimit
