I. GENERAL PRINCIPLES
a. Specific provision overrules any general assertion (Symes on daycare, 65302 on fines,
Schwartz on retirement allowances; Savage on awards/scholarships)
b. Burden of Proof on taxpayer, except for alternative bases (M.N.R. gets one assumption).
c. Business purpose rule requires that we look at the facts of a particular situation in light of how
business actually works (Canada Starch, John-Mansville)
d. Residual principle resolves absurdities & ambiguities in favour of taxpayer only on a
reasonable doubt (John-Mansville). Weak presumption, after plain meaning & object/purpose.
e. Teleological approach requires that interpretation of the Act follow the ordinary rules. The
court should look at the plain and ordinary meaning of the statute; its context, and its purpose. A
strict or a liberal interpretation of the provision will flow from the object or purpose of the
i. Example: plant built to supply company with asphalt (Will-Kare); Major J - focus on
text of the word “sale” would allow deduction; Binnie J, dissent - focus on the purpose
of the provision which was to encourage the supply of goods for sale to others would not
allow the deduction
a. Key Provisions
i. Section 2(1): Tax must be paid on taxable income for every person resident in Canada
at any time of the year.
1. Section 250(3): Resident includes people ordinarily resident.
ii. Section 114: If resident only part of year, taxable income only includes part earned
while you’re here (plus stuff ordinary taxable for non-residents)
iii. Section 250(1): deemed resident all year if you (a) sojourned 183 days or more, (b)
served in armed forces, foreign service, etc.; can be either a sojourner or a part-time
iv. Section 250(5): deeded non-residence if resident of another country with a tax treaty.
b. Residence: Key Language and Indicia
i. Question of fact, as the term lacks precise & inclusive definition [...] No special or
technical meaning (Thomson); economic association with the country or the spatial
bounds within which he spends his life or to which his ordered or customary living in
related […] degree to which a person in mind or in fact settles into or centralises his
ordinary mode of living with its accessories in social relations, interests and
conveniences …living in Canada is deep-rooted and settled (Thomson) […] come back
to attend to the calls of interest, of friendship and of piety (Reeder1)
As opposed to: stay or visit (Thomson) […] singular occurrences […] transitory and
occasional in nature (Schujahn2)
ii. Every person has at all times a residence for tax purposes (Thomson, Reeder).
iii. A person can have multiple residences (Schujahn, Reeder)
iv. What do you say what people ask where you live? (Lee,3 Reeder)
v. IT-221R3 – Significant Ties that make you a factual resident: (a) dwelling place, (b)
spouse, (c) kids. Otherwise, consider secondary ties.
Reeder: France for training
Schujan: Moved back to U.S. to return to work at company H.Q.
Lee: Married the Canadian and bought a home.
vi. IT-221R3 – Secondary Ties:
Personal property Economic ties Health insurance
Social ties Working Permits License/vehicle registration
Passport Membership in Union
vii. Relevant factors (Lee):
Past/present habits of life Residence of spouse and kids Subscriptions
Regularity/length of visits Membership in clubs Postal box
Ties there and elsewhere Credit cards Insurance
Telephone listing Pension plan Burial plot
Active business Personal belonging Presence of wife and kids
viii. Irrelevant factors: Nationality, immigration status (Lee, Thomson (Taschereau J.’s
dissent)), intention (Lee)
i. Applies when not a part-time resident
ii. Presence in Canada where the nature of the stay is either outside the range of residence
or what is commonly understood as temporary residence or residence for temporary
purposes. (Thomson) […] more than casual and uncertain […] be ordinary regular
course (R & L Food Distributors4)
iii. Does not include commuting to Canada daily for business (R & L – strange case –
taxpayer arguing for residence for corporate purposes contra: Shpak)
iv. May apply to long-term vacations (IT-221R3)
d. Ordinary Residence
i. Widens scope of resident and applies when a person is physically absent for an extended
ii. Five key indicia: (a) past & present habits of life, (b) regularity & length of visits in
jurisdiction asserting residence, (c) ties within that jurisdiction, (d) ties elsewhere, (e)
permanence of purposes of stay abroad (Reeder)
iii. not time focused, but residence in the course of the customary mode of life of the person
concerned, and is contrasted with special or occasional or casual or derivatory residence
[...] temporary in time and exception in circumstances, also accompanied by a sense of
transitoriness and of return where in the settled routine of his life he regularly, normally
or customarily lives [...]. (Thomson) centralised his ordinary mode of living at some
place in Canada or has maintained a sufficient nexus of connection therewith
iv. IT-221R3: Key criteria: (a) intention to permanently sever ties (is return scheduled?
Tax matters changed?), (b) regularity and length of visits, (c) residential ties outside
v. Ordinary resident is not a deemed resident
e. Winding Up Affairs: Not necessarily change in residence (Schujahn)
f. Terminating residency triggers a capital gain – Section 128.1(4)(b)
g. Corporate Residency - Section 250(4)(a) deems a corporation resident of Canada when it has
been incorporated in Canada. If the corporation incorporated before April 27, 1965, then so long
as it has been a resident or has carried on business in Canada after 1965, it is a resident of
Canada. A corporation may terminate Canadian residency by filing “articles of continuance” in
another jurisdiction and if necessary, by moving its management to another jurisdiction (so that
it is not a common law resident).
i. Under common law rules, a corporation is resident where its board of directors meets;
that is, where the mind and central management (control) of the corporation is present.
The location of the shareholders and officers is not relevant (De Beers).
R & L: Came into Canada during working hours to manage the company.
a. Key Provisions
i. Enumeration of Sources: All Income Must Come From a Source
1. Section 3(1)(a): Sources includes, but not to, the big 4 (employment, business,
property, and capital gains)
2. Section 56: Hodgepodge of miscellaneous sources.
a. Section 56(1n): Prizes, excluding those from employer.
b. Consequences of Characterisation:
i. Scope of deductions, withholding obligations, cash vs. accruals, fiscal periods
ii. If profitable, cap gains better; if not, business/property favourable
c. Non-Source Receipts: Certain Receipts Escape Taxation (Bellingham)
i. History/Context: No contextual or teleological justification for the source doctrine.
Origins in schedule system: preservation of confidentiality, separation of capital &
income appropriate in agrarian society (Bellingham)
ii. Factors: the nature/purpose of particular payment (Bellingham), circumstances
surrounding the actual receipt of the money, the manner in which it is held (Buckman –
iii. Sources Language: Must be capable of producing income, creation of new wealth,
productive sources of income, from performance or non-performance of a market
iv. Non-Sources Language: non-recurring transfers of old wealth, voluntary and
gratuitous transfers, windfalls, non-recurring, unusual and unexpected (Bellingham),
payments made on personal grounds (Ransom, quoted in Savage), benefit conferred as
an employee or as a person (Savage)
v. Indicia of Non-Sources (and current importance): (a) no enforceable claim, (b) no
organised effort to receive payment, (c) not solicited by taxpayer, (d) not expected, even
customarily, (e) no foreseeability of recurrence (sometimes), (f) not customary source of
income to taxpayer, (g) not in consideration of anything (Cranswick, in Bellingham).
vi. Surrogatum Principle:
1. Where, pursuant to a legal right, a trader receives from another person
compensation for the trader’s failure to receive a sum of money which, if it had
been received, would have been credited to the amount of profits (if any) arising
in any year from the trade carried on by him [...] the compensation is to be
treated for income tax purpose in the same way as that sum of money would have
been treated [...] per Lord Diplock in London & Thames Haven Oil
2. General damages not included in income, even if compensating for lost wages
3. Insurance payouts for lost past benefits taxable as income
vii. Divisibility: Single payment can have income and non-income parts (Bellingham)
viii. Addiction doth not a business make, there is no tax on a habit (Graham)
1. Non-Sources: Punitive damages (Cartwright), punitive damages (IT-365R2)
compensation from botched expropriations (Bellingham), strike pay (Fries),
payments for wrongful dismissal (Atkins, in Schwartz), gambling receipts
(Graham), damages for personal injury (Tsiaprailis)
2. Sources: expropriation compensation (Bellingham), proceeds of crime
(Buckman), non-compete payments from employer (form of retiring allowances)
(Richstone), capital indemnity for surrendering rights (Choquette)
3. Proceeds of crime: stolen funds can be imposable if intention never to repay is
clearly demonstrated by conduct (Buckman). Funds stolen from employer
constitute income from employment (Poynton); funds stolen from own business
in income from business (Curlett), proceeds of criminal enterprises (Eldridge)
IV. EMPLOYMENT INCOME
a. Is the Taxpayer an Employee? (Wiebe Door is a key case)
i. Substance vs. Form: Substance of relationship matters, not how parties characterise it
(Wiebe); what’s on T4 irrelevant (Cavanaugh)
ii. Employment = position of individual in service of another person [...] under obligation
to provide services (Schwartz)
iii. Characterisation can change over time.
iv. Tests to determine “employee” status
1. Control test: (a) power of selection, (b) wages, (c) control over method of
work, (d) right of suspension & dismissal (Walker); Montreal Locomotive held
that this is not the only issue; since more control over K’ors
2. Integration Test (per Lord Denning): Is the work an integral part or
accessory to the business; critiqued because the question pre-supposes the result.
3. Specific Results Test: Does contract speak of result (Alexander - contractor)
4. Economic Reality Test: (a) control, (b) ownership of tools, (c) share of profit,
(d) risk of loss (applied in Cavanaugh) (e) degree of responsibility for
investment and management (671122 Ontario).
5. Integrated Test: Need to look at total relationship between parties [...] and
combined force at the whole scheme of operations (Wiebe)
6. Normal Employee Test: would normal employee receive same amount of
v. Miscellaneous Factors:
1. Is employee running a business in how own right? (Wiebe), whose business is it?
(Montreal Locomotive), is there any tenure or permanency? Any expectation that
employer will look after employee (Cavanaugh), employer deducts taxes (Moose
Jaw, but see contrary in Cavanagh), does the employee have his own office?
2. Courts are not bound by the intentions of the parties (Wiebe)
a. Hauser: doctor in hospital – employee (integration, economic reality)
b. Alexander: anæsthetist in hospital – contractor (could subcontract)
b. Is the income “Employment Income”?
i. Section 5(1): Income from office or employment = salary, wages, other remuneration,
including gratuities, received [cash basis].
ii. Section 6(1)(a): Mandatory Inclusions
1. Perks: board, lodging or other benefits of any kind, received or enjoyed, in
respect of, in course of, or by virtue of office or employment, except
RRSP/Insurance/UI/profit-sharing, auto use, counselling services, salary deferral
a. Section 6(6): reasonable special/remote location room/board
b. Allowances for Personal/Living Expenses except (i-iv) various
government officials, (vi) clergymen, (v) reasonable travel expenses for
salesmen/contract negotiators, (vii) reasonable non-car travel
expenses for non-salesmen/K negotiators if outside of city, (vii.1)
reasonable car expenses for non-salesmen/K negotiators, (ix) kids’
education if proper schools not available in employment city.
i. Car allowances: must be solely km-based (x), and not include
other non-insurance or toll reimbursements (xi).
ii. Section 81(3.1): Exclusion for travel
allowance/reimbursements for part-time employees who carry
one business elsewhere or who work as teachers.
c. Use of employers car, see Section 6(2) for details.
iii. Section 6(3): Presumed Income: Any receipt (a) from employer, or (b) to satisfy
agreement made with prospective employer, unless proven otherwise. Inducements,
remuneration, and post-contractual conduct [non-compete payments] all included as
income form employment (Savage, Phillips)
c. Is the Payment an Employment Benefit? (Lowe)
i. Historical view: only fungible benefits were taxable (Tennant) / had to have character
of remuneration for services (Ransom), but Savage has expanded definition.
ii. Presumption: any payment from employer (past/present/future) is for services
(Ransom, Curran), taxpayer must prove otherwise (Curran); see also Section 6(3). –
policy is to limit tax avoidance.
1. Salaries: compensation for services rendered by employee in course of duties
[...] arise through contractual obligation (Ransom)
2. Gratuities: voluntary payments in consideration of services rendered in course
of employment [...] “by way of remuneration” (Ransom). Additional
consideration not required (Phillips)
3. “In respect of, in the course of, or by virtue of”: means received as an
employee, not as a person (Savage)
iv. Question of Fact (Lowe)
1. Is it in the character of remuneration?
2. Savage Test: Is benefit a material acquisition – not excluded elsewhere – which
confers an economic benefit on the taxpayer?
3. Lowe Test: (1) Is there an economic advantage measurable in economic terms –
apart from business purpose, (2) Does primary advantage ensure for benefit of
employee or employer / is it incidental to business activities?
4. Phillips Test: How does this payment put employee relative to others in
otherwise identical situations? It there an unfair advantage (horizontal inequity)?
5. Laidler Test: Is the motive to improve moral/please staff or to reward them
6. If the tax payer had not been an employee, would the benefit have been given?
(Laidler – with the turkey).
7. Is the benefit to the employee incidental to a principal benefit for the employer?
v. Reimbursements are not taxable: Reimbursements constitute payments by reason of
employment, not in the course of employment. (Ransom) […] being restored to
economic situation before employer ordered incurrence of expenses is not an economic
benefit (Huffman) and therefore not taxable (Ransom)
1. Homes: Losses on a forced sale can be compensated tax-free if employer forced
sale (Ransom), as well as interest differential (Krull) but not for more expensive
home in other city (Philips). Refinancing of outstanding mortgage balance a
compensable loss; not rest of mortgage (Philips); now, see Sections 6(19)-(23).
2. Cost-of-Living-Differentials: taxable (Gernhart)
vi. Allowances are taxable: Allowances constitute arbitrary payments in lieu of
reimbursement, no need to account (Ransom), premeditated sum, not referenced to
actual costs but projected, usually has a specific purpose
1. Characterised by what it really is, not what it’s called.
2. Need to look at entire scheme, not each individual payment […] a once-off top-
up to a reimbursement scheme may be non-taxable (Huffman)
3. This can have a bad outcome for the tax payer when the costs spent exceed the
4. Exceptions (not taxable, see above): allowances for travel if the tax payer is
a sales person (Section 6(1)(b)(v)) or others if distance is far (Section
vii. Apportionment of the benefit is possible (see Lowe)
viii. IT470: Administrative Accommodations
1. 100$ in gifts, once per year (except year of marriage)
2. Parties up to $100 per person.
3. Subsidised meals (if employee pays enough to cover costs)
ix. Exceptional Cases:
1. Free Parking non-taxable when needed during irregular hours (Chou) – contrast
Martyn, no deduction for commuting during irregular hours.
2. Food & Beverages: food & drink over and above what would normally be
consumed, required for incremental nourishment required to earn the income,
can be deductible, when an analogous deduction is available for gasoline (Scott)
d. What is the value of the benefit?
i. Benefit does not have to be used in order to be claimed (Richmond)
ii. There are different tests used to valuate the benefit:
1. Real Economic Value Test – to the employee (Wilkins v. Rogerson),
2. Cost-of-Production Test: (rejected in Giffen, because air miles have no cost but
have value to the employee)
3. FMV Test: is the dominant test in Canada: the amount that a person not obligated
to buy would pay to a person not obligated to sell
4. Alternative Acquisition Test (Giffen, Youngman)
iii. Burden of Proof is on the M.N.R., taxpayer must disprove Minister’s assumptions
e. When is the benefit included?
i. receipts handled on cash basis, but note constructive receipt (Roberts)
V. EMPLOYMENT DEDUCTIONS
a. Key Provisions
i. Section 8(2): ONLY deductions possible are in Section 8
ii. Section 67 imposes a reasonableness requirement
b. Travel & Lodging
i. Section 8(1)(f): Commission salesmen ordinarily required to travel and contractually
to pay own expenses – amounts expended to earn income except capital expenses and
club dues – max: commissions earned, 8(4) 12-hour limit, 8(13) home-office limits
ii. Section 8(1)(h): Employee ordinarily required to leave office contractually obligated
to pay expenses – travel expenses except motor vehicle expenses – 8(4) 12-hour limit
iii. Section 8(1)(h.1): Basically same as 8(1)(h), but for motor vehicle expenses
iv. A tax payer can choose either to exempt the allowance under Section 6(1)(b) or to
use the deduction provisions under Section 8(1); a tax payer cannot do both.
i. Every employee obligation to get from home to work. Deductions only if the employee
is travelling while on duty (Martyn)
ii. If commuting costs are onerous, this should be discussed with employer (Martyn).
iii. Travel in consequence of employment is not deductible (Martyn)
iv. If you carry work product around in your car, commuting expenses may be deductible!
v. Ordinarily: That which occurs normally, a matter of regular occurrence, commonly,
and usually; frequency of event is not important (Imray). Mixed jurisprudence on
whether contractual obligation to travel required. Police officer appearing in court, even
when “off-duty” (Klue - deduction was allowed)
d. Legal Fees (Section 8(1)(b))
i. Salary & Wages: defined in Section 248(1), includes anything under Sections 5-7,
fees must be for right to collect, not actual collection
ii. Does not include “defensive” suits (such as to defend one’s competence, Blagdon)
e. Professional Dues (Section 8(1)(i))
i. Professional dues if the profession is defined by statute (Swingle), otherwise union dues
ii. Does not include liability insurance, per Section 8(5).
f. Supplies, and/or Secretary (Section 8(1)(i)), Home Office (Section 8(13))
i. Supplies are deductible if required by contract and consumed directly
ii. Office must principal place of business or it must be used exclusively for business
during time in question, max deduction is income that year, but may be carried forward.
iii. The secretary must aid with work duties; housekeeper doesn’t count (Watts)
VI. BUSINESS/PROPERTY INCOME
a. Is the income derived from a business?
i. Two-part Test in Stewart
1. Stewart test: (1) is activity commercial in nature? Supported by (a) subjective
intention to make profit and (b) carrying out activity in accordance with
objective standards of businesslike behaviour [extent of organisation]
a. Organisation: Important factors: (1) intention to make a profit or pursue
amusement, (2) quantity of time devoted, (3) degree of organisation
2. If the business has a personal element, look at the Moldowan factors for
REOP (urbanites on a farm): (1) profit-loss history, (2) taxpayer’s training, (3)
intended course of action, (4) sufficiency of capitalisation. Added in Sipley: (5)
time spent on activity; sufficiency of income not definitive.
ii. Key Language:
1. Anything that occupies the time, attention and labour of a man for the purpose of
profit.” (Smith v. Anderson); take risks, receive reward (Buckman)
2. Lack of concern for efficiency is evidence that activity is non commercial.
(Fleming – hubby & wife writing a book)
3. Activities taken out to earn capital gains if commercial in nature are businesses
b. Is the income derived from property?
i. Typically, interest, rent, royalties & dividends
ii. Business requires more taxpayer activity than property (Stewart). Indicia include: (1)
relation of income to time & effort of taxpayer, (2) trading character to income, (3) does
it look like business, and (4) nature of services/activities performed (Lois Hollinger).
These are subjective factors that focus on the status of the taxpayer.
iii. Property income flows from ownership¸ business requires a significant amount of
iv. Expenses ancillary to the property itself [...] exercised by owner in capacity of owner
do not convert landowner to businessman, who provide services (Walsh and Micay)
v. Imputed income, (a) non-cash and (b) arising outside marketplace, not property
vi. Must include some element of ownership. Purely personal commitments not included
(No. 481 – non-compete payments not property). However, contingent rights (to a trust,
for example) can be (Fasken Trust)
VII. CALCULATION OF BUSINESS & PROPERTY INCOME
a. General Principle
i. Section 9: The computation of income is based on the concept of profit. The act does
not define the term. The interpretation of the term is a question of law.
b. Choice of Accounting Method – (Canderel)
i. Role of GAAP / “Well-Accepted Business Principles”: interpretive aids.
ii. Choice: lack of definition of profit in act is intentional; each taxpayer must be able to
compute his or her income in a such a way as to constitute an accurate picture of his or
her income situation (Canderel)
iii. Burden of proof: Minister has no right to insist upon one method over another,
provided method chosen does not (a) contract the act (b) is consistent with established
business principles, and (c) gives accurate picture [...] onus is on Minister to show that
an alternative method is more accurate than one chosen by taxpayer (Canderel)
Walker/Morden: gambling cases
c. Mandatory inclusions as income
i. Section 12 sets out the list of mandatory inclusions
1. 12(1)(a): Prepayments, revenues subject to return are included in the year of
income; it is balanced by Section 20(1)(m) which allows the tax payer to carry
over revenues when the costs are incurred.
2. 12(1)(b): Account deemed receivable when billed or would have normally been
billed. This provision does not imply that unbilled accounts are not receivables
(Maritime Telegraph); balanced partially by Section 20(1)(n).
a. For an amount to be receivable, taxpayer must have a legal and
unconditional and not subject to conditions precedent (Colford) or under
a restriction (Robertson), though not necessarily immediate, right to
receive it. (Colford - holdbacks); see also capital receipts
b. Amount must be determinable to constitute a receivable (Benaby –
c. A receivable does not have to be billed (Maritime Telegraph)
3. 12(1)(d): Previous year’s reserve for doubtful debts
4. 12(1)(e): Previous year’s reserve for deductions under Sections 20(1)(m) and (n)
5. 12(1)(f): Insurance proceeds used to repair damage to depreciable property
6. 12(1)(g): Rent & royalties from use of property
7. 12(1)(i): Recovered bad debts
8. 12(1)(j): Dividends [any pro rata distribution to shareholders, except in case of
liquidation or reduction of corporate capital]
a. Section 15: various benefits conferred upon shareholders, other than
dividends, are considered part of income.
9. 12(1)(n): Employee profit-sharing plan payments
ii. Computer software: distinguish shrink-wrap (over-the-counter, generic license
agreement) are treated as a sale vs. custom software which is treated as a licence [purely
d. Interest Payments are included as income:
i. 12(1)(c): Interest, including accrued, forgiven, etc.
1. Section 16(1): blended payments must be split up reasonably. This is a question
ii. Three indicia of interest: (1) compensation for use of money belonging to another
person, (2) referable to principal amount, (3) must accrue daily (Miller, IT-396R).
1. Discount: Interest when debt carries sub-market rate, otherwise, it is a capital
2. Late Payment Charges: Interest per case law (Lebern Jewelry, Wenger’s).
3. Delayed payments on settlements: not interest even if judgement call it such,
unless held on deposit or trust (IT-365-R2)
4. Delayed payments on sales: Deemed to include interest when (a) total purchase
price is above market price (Rodmon Construction), (b) seller seemed to have
intention to avoid interest (Groulx). Key question: (a) is it normal to charge
interest, (b) is price higher than FMV? (Groulx)
iii. For individual taxpayers (not corporations), interest may be included either when
it is received or receivable depending upon the method chosen by the taxpayer and
provided the application of the method is consistent among similar debt
iv. Accrued interest taxable in the hands of the donor (Antosko).
VIII. DEDUCTIONS FROM BUSINESS AND PROPERTY INCOME
a. Section 18: Prohibited Deductions
i. Section 18(1)(a), (c) are completely redundant
ii. Section 18(1)(b): excludes capital cost allowances, which are allowed under Section
iii. Section 18(1)(e): Reserves, unless specifically allowed under Section 20
1. Section 20(1)(m) – deferred revenues, paid in advance, with no delivery
iv. Section 18(1)(h): Personal or living expenses unless Section 62 (moving) & Section 63
v. Section 18(1)(l): Recreational facilities or club dues, unless company’s business is
provision of them
vi. Section 18(9): Prepaid expenses, including (ii) pre-paid interest, taxes, insurance, rent,
royalties; they have to be deducted in the year that the tax payer benefits from the
vii. Section 18(12): Home office expenses, unless office is (i) principal place of business or
(ii) used exclusively for business or regular/continuous basis for meeting clients; loss
limited to income, but can be carried over. Allocation usually done by percentage-of-
area method (not in Act).
b. Current Expenses (Permitted Deductions) – Inventory Management
i. General assumption is that inventory follows accounting principles.
ii. The formula is defined as follows: COGS (Cost of Goods Sold) = OI + P (Cost of
Acquired Inventory) – CI
1. What should be included under “P”? Lay-down cost (invoice + customs, duties,
freight, but not excessive storage), direct labour, share of overhead, period
costs. Storage, accounting, financing usually not included, unless integral to
production; Three methods: prime cost, full cost, variable costs.
2. Average cost method is acceptable for determining CI (Handy & Harman;
Irwin). CRA accepts unless specific item method is feasible. FIFO acceptable.
LIFO rejected by Privy Council in Anaconda.
iii. Section 10: Inventory
1. Section 10(2): Beginning-year inventory same as previous year’s closing-year
inventory. The lower the CI, the higher the CGS, and the lower the stated
2. The tax payer can choose to maintain the value of the inventory or elect to use
the FMV. Once FMV is elected, the tax payer must stick with that method (Reg.
1801, Section 10(2.1)).
3. Section 10(4)(a): FMV for WIP by service professionals is the amount reasonable
expected receivable for work that year
4. Section 34: WIP from lawyers, accountants, dentists, doctors, vets or
chiropractors can be excluded form income, even though expenses are deducted
as incurred. The professional must choose to make the election. However, per
Brock, once WIP is “billed”, it’s no longer WIP and must be declared as income.
c. Current Expenses (Permitted Deductions) – Other costs
i. Tests to determine whether a current expense is properly deductible
1. Needs Test: (1) what is need being met by expense, (2) would need exist /
expense be incurred independent of business, (3) is need intrinsic to business?
(Scott – courier food, Leduc - pædophile) [...] was expense ancillary to earning
2. Ordinary Risks & Hazards Test: (1) What is the taxpayer’s business? (2) Is
event precipitating expenditure part of ordinary/normal risks & hazards, and
expected contingency, incidental to the trade, or is event extraordinary and
unusual (Imperial Oil – negligence payment)
3. Business Purpose & Practice Test: (1) Is deduction consistent with ordinary
principles of commercial trading or well accepted principles of business [&
accounting — deleted!] practice, and (2) is it excluded by the Act? (Royal Trust
– club dues)
4. Accounting Practice Test (Canderel)
ii. Factors to be considered
1. Relationship to the operation (Imperial Oil), does not have to be connected to
particular receipt (Imperial Oil, Royal Trust), consistent with good business
practice, policy carefully considered, well-regulated, in effect for many years,
suited to kind of business done, benefits demonstrated (Royal Trust), purpose of
outlay matters and not the result (Royal Trust)
2. Is matter covered elsewhere (like Section 63) (Symes), if yes, then may not be
3. Profit not necessary for deductibility (Imperial Oil).
iii. Specific Examples:
1. Legal Fees: Deductible if incurred to defend taxpayer’s trade practices [...] and
to preserve systems that helped produce income. Must be carried out in normal
course of earning operations, or a direct result of the activities themselves ...
look at activity that results in the charges (Leduc). Eldridge...costs of defending
call girls OK if part of contractual obligation to employees. However, not if
hypothetical and speculative (Leduc). Faerie v. Hall: Gratuitous slander not part
of business; resultant damage award not deductible – except for a newspaper!
(Herald & Weekly Times)
2. Entertainment: typically all-or-nothing (Hanson & Randall, p. 388). Policy
problems: (1) horizontal inequities, (2) vertical inequities, (3) abuse, (4)
implementability, (5) moral acceptability, (6) over-consumption of
entertainment, (7) no reasons to blank disallow, except with perhaps some
foreign competition. Weddings/bar mitzvah acceptable, if guests know it’s a
business activity. (Grunbaum OK, Roebuck not)
3. Education: generally non-deductible (Gridley); post-grad courses not
deductible (Levin), but refresher courses may be
4. Home-Office Commuting: Cumming (home-office to workplace travel): when
the home-office is the base of operations, commuting expenses can be
deductible. Important fact: the workplace cannot be considered base of
5. General Commuting: Threat of work-related violence en route to work does
not convert a commute from a personal matter to a business one (Hogg)
6. Food & Beverages: food & drink over and above what would normally be
consumed, required for incremental nourishment required to earn the income,
can be deductible, when an analogous deduction is available for gasoline (Scott)
7. Illegal Businesses: Expenses deductible if otherwise legal, but there may be
evidentiary problems (Eldridge)
8. Theft: Employee purloining is deductible; high-level embezzlements aren’t
(General Stampings, IT185R).
9. Damage Awards & Settlements: Deductible if: (a) made for purpose of
gaining income under Section 18(1)(a), (b) not on capital
(acquisition/preservation of capital asset or enduring benefit (18(1)(b)), not
exempt income (Section 18(1)(c), not personal (Section 18(1)(h) and reasonable
67. Section 18(1)(a): no need to attempt to prevent act, only need to show that
there was an income-earning purpose. (IT-467R2) Wrongful dismissal awards
are normally a deductible expense. Non-compete payments are considered ECE
(per Section 14). Capital awards can be attributed to Capital Cost.
10. Advertising: Deductible as current expense; controversial (Tower Investment)
11. Home Help / Daycare: money paid that frees taxpayer for work not deductible
[…] contribution to income-earning work of a secondary nature (Benton –
invalid farmer); daycare not deductible (Symes)
12. Bad / Doubtful Debts (IT442R)
a. Bad = “evidence it has in fact become uncollectible”
b. Doubtful = “reasonable doubt about collectibility”.
c. Relevant evidence of collectibilty: period of arrears, status/prospects of
debtor, past credit history, security. Relevant factors for reasonability:
past history, industry experience, general conditions, cost of collection.
d. Global calculations not “reasonable”. Must be debt-by-debt. Subject to
Honest and reasonable determination from taxpayer (Oryschack)
d. Interest Deductibility (Permitted Deductions)
i. Four criteria deductibility: (1) paid or payable that year, (2) legal obligation to pay
interest on borrowed money, (3) used for purpose of earning non-exempt income, (4)
ii. If property acquired with loan destroyed, the interest no longer deductible. What matters
is current use, not original use (Bronfman, Attaie – man moved into house he previously
rented; Transprairie – used to re-capitalized the business, problematic judgment). Just
because you’re still paying interest does not mean that the interest is still deductible.
iii. Under Tennant, interest still deductible so long as replacement property can be traced to
entire amount of the loan. Section 20.1 & 20(3)
iv. Bronfman: Use of the loan for mixture of eligible and ineligible purpose may make
interest non-deductible. Taxpayer has onus to trace borrowed funds to an identifiable use
which triggers the deduction. Both (1) use and (2) purpose of funds must be
characterised. Direct use takes precedence over indirect use in characterisation.
v. Some merit to looking at business reality: did the transaction actually increase income?
vi. The courts must deal with what the taxpayer actually did, and not what he might have
done (Bronfman). Therefore, (1) the courts will look at the true economic purpose applies
only in face of a sham/window-dressing/other vitiating circumstances, and (2) even a
sham cannot supplant clear & unambiguous provision of the Act. Singleton: Complexity
doth not a sham make.
vii. Section 20.1 & 20(3) Replacement property: reinvested proceeds & refinancing of
debt allow deductibility of interest to continue.
viii. Section 16(1): Blended payments must be attributed reasonably – phrasing on contract
ix. Section 18(9.1): payments to reduce rate of interest or retire debt early are interest.
x. Section 21(1): If interest used to acquire depreciable property, interest may be added to
ACB. Election required.
xi. Section 18(2): If land held primarily for capital gain, deduction limited to income from
land. Extra interest must be added to ACB. Section 53(1h).
e. Deferred Revenue/Interest (Permitted Deductions)
i. Section 20(1)(m): deferred revenues
1. Section 20(1)(n): part of profit from property sale can be deducted in the year
and deferred. For all property but land, some of the payment must be due at least
2 years hence.
a. Section 20(8): Allows a three-year carry-forward limit, residents only.
b. IT-154R: reserve = amount due x (gross profit / selling price)
ii. Section (20)(1)(p): bad debts
iii. Section 20(14): interest that has accrued while the property was in the possession of
the other party (Antosko)
f. Capital Expenses (Permitted Deductions – See next Part on Capital Cost Allowances)
i. Section 20(1)(a): capital cost allowance, which is governed by Reg. 1100ff of the
Regulations and Schedule II.
ii. Section 20(1)(b): eligible capital expenditure
iii. Section 20(1)(l): Reserve for doubtful/impaired debt reserve; reasonable amount of
Section 20(1)(b) inclusions.
g. Section 67: Reasonability
i. Section 67.1: Entertainment expense deductions limited to 50% of what is actually paid.
ii. Section 67.5-.6: Deductions forbidden for public policy (bribes in conflict with
Criminal Code, all fines issued after 2004)
iii. Typically used to disregard deductions for disguised personal expenses or else
diversions of funds to spouses or non-arm’s-length parties (No. 511)
1. Arm’s length – “related persons” which include individuals connected by a
blood relationship (grandparents, parents, siblings, children, successive
descendants), marriage or adoption, and corporations connected by the common
control of related persons.
2. Arm’s length – “unrelated persons” which include persons that satisfy the
following criteria: (1) existence of a common mind, (2) similar interests, (3) de
facto control due to influence, (4) price difference from FMV.
IX. DEPRECIABLE PROPERTY: KEY PROVISIONS
a. Characterisation of an Business Expense as Capital or Current
i. Question of fact to be decided on sound business or commercial principles (or of
policy, Denison Mines)
ii. Leading Case: Johns-Manville (open pit mine): Relevant features: (a) purpose of
expense to deal with current issue, (b) expenses incurred year in & year out, an integral
part of day-to-day operations, (c) discernable, constant, element of daily cost of
production, (d) assets have no intrinsic value, (e) no enduring benefit, (f) no enduring
asset, (g) absurdity of capitalisation [leaving no deduction for a bona fide expense], (h)
obstacle-removing, not revenue-creating, (i) relatively small cost.
iii. Once-And-For-All vs. Recurring: (rejected in British Insulated & Gold Bar)
iv. Current Expense Leaves Behind a Capital Asset: when an ordinary operating
activity leaves behind a capital asset, the expenses of the activity are still expensed as
incurred (Denison Mines); not just about clearing an obstruction (see also Kellogg)
v. Repairs vs. Upgrade Situations
a. Does expense merely maintain what was had before, work necessary
from wear and tear [...] a mere repair [...] replacement of an integral part
of the asset…money laid out to repair the physical effects of using the
asset (Canada Steamship)
b. A change in character [...] an upgrading [...] so different in kind from
thing replaced that it a change in character [...] different in kind from
what it was (Canada Steamship)
c. Replacements of worn or damage parts, even though substantial (Shabro)
d. Costs of acquiring or creating a business entity, structure or
organisation, or addition to such an entity, is capital. Expenditure in
process of operation of profit-making entity is revenue. (Canada Starch).
e. Bring into existence an asset/advantage for ensuring benefit of a
substantial and lasting advantage throughout business life (British
a. Precedent matters for purposes of consistency; and motors are generally
considered capital expenses (Canada Steamship)
b. Need to consider purpose of outlay: what was in mind of taxpayer? To
improve asset? To make it different? To make it better? Was there an
option? (Gold Bar); Need to look at taxpayers’ point of view (Shabro).
c. Relevant, but not determinative: Cost as a percentage of total cost (not
important) / total size (Canada Steamship, Gold Bar)
d. Irrelevant: Once-in-a-lifetime […] more substantial, less likely to occur
(Gold Bar), hidden defect vs. accidental damage (Gold Bar), changes in
technology, effect of repair work
e. Irrelevant: Effect of expenditure, normal repairs “improve” an asset
a. Repairs can include expenses made due to accident or vandalism; does
not have to be wear and tear (Shabro)
b. Complete rebuilding of asset is a capital expense (Gold Bar)
c. In practice, low-cost items are routinely considered expenses.
4. New Technology: Repairs can be made with new technology or take into
account previously unknown circumstances (Shabro, Gold Bar)
vi. Defending/Creating Trademarks
1. Protection of intangible assets: an expense must be working expenses, incurred
in process of earning the income. Litigation to protect an intangible assets is a
capital expense. Lobbying expenses also capital (Dominion Natural Gas [...]
may no longer be good law). But see Kellogg [...] ordinary legal expenses, like
defending trademarks, can be deductible as current expenses. Costs to affirm
registration of a trademark are deductible as current expenses (Canada Starch)
b. Depreciation Regime – Workings
i. Section 20(1)(a): Capital cost allowance (“CCA”) may be deducted from business
ii. Reg. 1102 Exclusions from CCA: (1)(b) inventory, (1)(c) not used for generating
income (Ben’s), (2) land; shares and commodities not included either
iii. Section 13(26): There are two requirements to take CCA:
1. Is the property “acquired” – meaning that the tax payer has to have the
incidents of de facto ownership such as possession, risk, enjoyment, etc.
2. Is the property available for use [Note: only applies to CCA as terminal
loss/recapture is still possible if the property is not available for use]
a. 13(27): Non-Buildings: Availability for use = (a) first used, (b) 2 year
rolling start after the property is acquired even if not used to earn income
(no half-year rule!), (c) disposed, (d) delivered & usable.
b. 13(28): Buildings: Availability for use = (a) substantially all first used,
(b) construction complete, (c) 2-year-rolling start after the property is
acquired even if not used to earn income (no half year rule!), (d)
iv. Section 13(21): Definition of UCC = A + B – E – F (F, being the lesser of the capital
cost or POD)
1. Reg. 1100(2): Half-Year Rule: If (Athat year – Fthat year) > 0, subtract 50 % from
UCC for that year. The exceptions include: Classes 13, 14, 15, 23, 24, 27, 29,
34; some of 10 and 12; Section 16.1(b) leasing situations, Section 13(27)(b),
28(c) (two-year rolling starts for buildings, etc.).
v. Section 13(1): Recapture: E + F > A + B, differences included in income
1. Section 13(2): Exception for passenger vehicle above $20,000.
2. Section 13(4): May elect deferral of recapture if invested in replacement
property. Two years if involuntary (stolen, destroyed, expropriated), 1 year
otherwise. Add to UCC min (F- UCC, amount used to acquire replacement
property). Basically the money used to acquire replacement property can be
deducted from recapture.
a. Section 13(4.1): Replacement criteria: (a) reasonability, (b)
same/similar use, (c) similar business, (d) equal taxability/Canadianness.
b. Section 44(4): Deemed overlap with Section 44(1).
vi. Section 26: Terminal loss (A+B > E+F and class closed) must deduct difference.
[Note that this is 100% deductible business expense; not capital loss].
1. Section 26.1: Terminal loss does not apply to passenger vehicle over $20,000.
2. Section 13(21.1): If land sold with building, building can have terminal loss
only if land has no capital gain.
(A-F) must be greater than $0 to trigger the rule. The value cannot be negative (Section 257).
vii. Reg. 1100(11): Rental Property CCA limited to net income from all property in the
class. Definition of rental property in Reg. 1100(14). Similar rules for leasing property
1. Reg. 1101(1): Separate business activities have separate classes
2. Reg. 1101 (1)(a), (c): Rental building over $50,000 each has its own class.
3. Reg. 1101 (5)(h): Leasehold buildings: each has its own class.
c. ECE Regime (Post-1971!)
i. Includes intangible property including goodwill (Sask. Drug), IPO fees (Royal Trust),
customer lists, franchises, and incorporation/reorganization expenses
ii. Section 20(1)(b): 7% of CEC deductible annually.
iii. Section 14(5): CEC = A + B – E – F; ¾ x ECE + Recapture – ¾ * (net POD) – total
deductions to date.
d. Section 68: Payment for Mixed Property & Services: Purchase prices allocated on basis of
reasonability, not on what is in the contract. [Per Golden, applies to depreciable property and
must take into account both vendor and buyer perspective].
X. DETERMINING CAPITAL GAINS
a. Is the receipt a capital receipt or business income (adventure in the nature of trade)?
i. Principal Tests (IT-459)
1. Taxpayer’s Conduct: Did taxpayer act like a dealer of the property (Taylor)?
Relevant factors (IT-218R). Fast flip, evidence to find purchasers, efforts taken
to improve marketability, listing, commercial background of taxpayer.
2. Nature of Property: Did nature of property exclude possibility that it was it a
trading asset? (Taylor) Large quantity of goods? (Rutledge)7. Stocks are prima
facie investment nature, unless dealt by brokers (Irrigation – but note
3. Taxpayer’s Intent: Secondary intention matters when primary intention not
feasible (lack of capitalisation, etc., Regal Heights). With no second intention to
sell, the proceeds can be a capital receipt (Riznek).
a. Need to consider (a) organizing of the speculation, (b) maturing the
property, and (c) disposing of property. (Leeming / Irrigation)
4. Indicia of Capital Receipt: single/isolated trade (Taylor), no organisation,
different from other activities performed (Lemming)
ii. Not Relevant: expected cash flows (no dividends for years) (Irrigation)
iii. Key Language
1. Is sum of gain…a mere enhancement of value by realising a security, or it is a
gain made in an operation of a business/scheme for profit-making? (California
2. Turning of investment not merely incidental…but essential feature of business
3. Activities all of a promotional nature […] venture was entirely speculative.
4. Purely speculative purchase (Irrigation Industries)
5. Trading nature vs. capital nature…can do nothing else with lead but sell it
iv. Articles of Incorporation: Activities included are [weakly] rebuttably resumed to be
part of the business when performed (Canadian Marconi)…but enumeration not
necessary (Regal Heights).
v. Change of Intention: Land originally purchased for business, but then new sold at
profit due to change of circumstances. Three views: (a) not an adventure (Riznek), (b)
adventure (Regina Shopping Mall), (c) apportioned (Hughes, IT218R)
vi. Buying Company & Turning It Around: Not an adventure (Becker).
b. If the property is capital property: calculating the Adjusted Cost Base
i. Property Acquired pre-1972 – no capital gain until January 1, 1972.
1. ITAR 26(7): May elect to use FMV on Dec 31, 1971 (“V-Day”) for everything,
the first time any disposition is made; applies to all capital property acquired
before 1972, but not so relevant today.
a. ITAR 26(3): Transfer at arm’s length: use median of (a) actual cost, (b)
FMV on V-Day, (c) POD.
b. ITAR 26(5): Transfer not at arm’s length: not discussed in case book.
3. Depreciable [no capital losses, CCA/ECE system incorporates]
a. ITAR 20(1)(a): Transfer at arm’s length: pick the higher of the FMV on
V-day or original cost
b. ITAR 20(1)(b): Transfer not at arm’s length: not discussed in case book.
ii. L40(3): No negative cost base; deemed gain and resetting base to zero.
iii. Section 54: ACB = (a) Capital cost if depreciable, (b) cost as adjusted if not.
1. Section 53: provides a long list of adjustments to cost; sub-section (1) are
additions (f) substituted property, (h) non-deductible interest/property taxes, if
not otherwise deductible, (n) surveying/appraisal costs if not deductible, and (2)
are subtractions (d) parts sold off previously, (l) accrued interest, (k)
2. Section 21(1): Interest expenses may, if elected, be added to cost basis of
3. Section 18(2): If land held primarily for capital gain, deduction limited to
income from land. Extra interest must be added to ACB. Section 53(1h).
iv. Section 40(3): Negative ACB, deemed gain and per Section 53(1)(a), ACB reset to zero.
v. Deeming provisions:
1. FMV: Dividends in kind (Section 52(2)), Lottery/Prizes (Section 52(4)), Death
2. Weighted Average: Identical property (Section 47(1))
3. $0: Shares of a bankrupt corporation (Section 50(1))
4. ACB: Property transferred by spouse (Section 73(1))
vi. Rollover provisions:
1. Elective: transfer to widow (Section 70(6)), transfer to a corporation (Section
86(1), both must elect), exchange of shares (Section 51), exchange for shares
2. Mandatory: transfer of farm property to child (Section 73(3))
3. Replacement property (Section 44):
a. For involuntary dispositions (“former property”)
Proceeds must compensate for theft, destruction or expropriation of
the property – trigger POD
The property cannot be stock in a corporation
The deeming provision becomes available in the year when the
settlement amount is receivable
Can take the deferral up to two taxation years after the disposition
b. For voluntary dispositions (“former business property”)
Capital property of the taxpayer used for the purpose of producing
business income (not property income)
Must be immovable/real property (Section 248(1))
Does not include rental properties
The replacement property must be a “reasonable replacement” and
the use must be the same or similar to the former use (Section 44(5)).
Can take the deferral up to one taxation year after the disposition
vii. For a partial disposition, the court will assess the disposition on the basis of the
proportion of the value of the property sold. ACBpart = % value sold x ACBwhole
c. Calculating the POD
i. What qualifies as a disposition?
1. Triggering a disposition
Transfer of beneficial ownership but not legal title
Compensation for damaged property (Section 54)
Changing the characteristic of the property without disposing of it can
trigger a capital gain. This applies to shares and to debts primarily
(IT-448). Fundamental characteristics in case of a debt include: (1)
the identity of the debtor, (2) the interest rate, (3) the maturity date,
and (4) the principal amount (General Electric Capital Equipment
Transfer of a legal title to a trust that is not a bare trust triggers a
Transfer of legal title to an RRSP triggers a capital gain.
2. Deemed dispositions
Change of Residence (Section 128.1)
Death (Section 50(5))
Change in use (i.e. from income-producing to personal use or vice
versa) will trigger a capital gain. This is not in the Act, but derived
from case law (Hughes). The tax authorities have adopted the court’s
position from that decision (see IT-218R).
A trust is deemed to dispose and re-acquire its property every 21
Legal title transferred to secure a debt (like a mortgage)
Partition of co-ownership does not trigger a capital gain unless the co-
owners do not divide the property according to their proportion of
Issuance of debt or shares
Granting of an option to acquire does not trigger a capital gain. If the
buyer exercises the option, the price paid for the option is subsumed
into the purchase price. If the buyer does not exercise the option, the
money paid for the option is a capital gain, as the ACB for the option
is deemed to be $0.
ii. The taxpayer receives the POD when there is an absolute but not necessarily an
immediate right to be paid (IT-170R). Conditions precedent can delay payment; the
courts will look at the structure of the transaction (capital leases will result in an
immediate transfer of ownership for tax purposes (Ryan).
iii. For a partial disposition, the court will assess the disposition on the basis of the
proportion of the value of the property sold. ACBpart = % value sold x ACBwhole (Section
iv. Reserves for POD operate in a similar manner to reserves for deferred payments under
Section 20(1)(m). However, the taxpayer can only take a reserve up to: reservemax =
capital gain x (4 - years since disposition) / 5. Therefore, if one formula produces a
smaller reserve, the taxpayer must take the smaller reserve in that year.
d. Personal Use Property
i. Section 54: Definition: (a) used primarily for personal use/enjoyment of taxpayer &
relatives, (b) debt (unpaid balance) from disposition of such property, (c) option to
acquire such property
1. Section 50(2): If property sold in an arm’s length transaction, and there is a
default, the POD = ACB – Previously Recognised Gain. [Result: capital loss equal
ii. Section 40(2)(g)(iii): No capital loss on personal property.
iii. Section 46(1): De minimus rule provides that both the ACB & proceeds are set at $1000
minimum, assigned (2) pro rata to any partial disposition.
iv. Section 46(3): Disposal of a Set is deemed a partial disposition if everything acquired
by one person or a group of friends, if ensemble ordinarily disposed of…as a set.
v. Section 41: Listed Personal Property (1) Taxable net gain = 50% x (2) gains-losses
from listed personal property, (2) previous losses from 7 years before or 3 after – old
losses must be taken before newer losses. [Note that de minimus rules apply!]
1. Section 54: Personal-Use Property that is (a) print, etching, drawing, painting,
sculpture, similar work of art, (b) jewellery, (c) rare manuscript/book, (d) stamp,
(e) coin; exhaustive list
e. Intra-family Transfers
i. Gifts are deemed to be transfers at FMV. Section 73 exempts the payment of capital
gains from the transfer of property between spouses.
ii. Penalty: Section 69(1): Adjusts the price of the sale to FMV for the party that would
benefit otherwise from the over- or under-evaluation of the price.
1. Parties can use a price adjustment clause to agree to accept the FMV retroactively.
XI. DEDUCTIONS & EXEMPTIONS FROM CAPITAL GAINS
a. Superficial Losses are not recognized or deductible
i. Section 40(2)(g): (i) superficial losses, (ii) cancelling debts to friends, (iii) loss on
1. Section 40(3.3): Superficial Losses = buy-sell identical substituted property, 30
days before or after, remain owner after 30 days.
b. Principal Residence
i. Ordinarily inhabited: in most cases, usually or commonly occupied as an abode,
includes seasonal or recreational occupation
ii. Expansive definition (Section 54): means a particular property that is a housing unit, a
leasehold interest in a housing unit or a share of the capital stock of a co-operative
housing corporation acquired for the sole purpose of acquiring the right to inhabit a
housing unit owned by the corporation and that is owned, whether jointly with another
person or otherwise, in the year by the taxpayer
1. Property may be located outside of Canada.
iii. Claiming more than ½ hectare is difficult; must be indispensable.
1. Objective test (Rode); examples: zoning law setting minimum lot size (Yates);
examples: zoning, barriers to subdivision, accessibility to roads & utilities
2. Subjective evidence marginally relevant, the land must be clearly necessary
iv. One place must be designated per year; post-1981: only one principal residence per
v. IT-120R6: boarders or other income work in principal residence OK if (a) income
ancillary to personal use, (b) no structural changes, (c) no CCA taken.
vi. Formula: Capital gain = A - (A x B/C), Section 40(2)(b) which exempts the personal
use part from capital gain.
vii. Section 45(2) – protects against deeming to income-producing (provided no CCA);
Section 45(3) – avoids application of 45(1) deemed disposal and re-acquisition under
Section 40(1)(a)(ii); the years that the taxpayer declares another personal residence are
accounted for in the formula.
c. Charitable Donations
i. Real and personal property (Section 118.1(6)) – if a person gives capital property to a
charity, the taxpayer can choose the amount of the POD, despite the rule under Section
69 which deems the donative transfer to be at FMV. The result is that the taxpayer can
trigger a capital loss, but it can nullify the amount of the charitable tax credit determined
by the value of the gift.
ii. Shares (Section 38(a.1)) – deems the capital gain to be $0 (ACB = POD). Furthermore,
the taxpayer does not have to reduce the amount of the tax credit
iii. Ecological property (Section 38(a.2)) – deems the capital gain to be $0. Furthermore,
the taxpayer does not have to reduce the amount of the tax credit
iv. Canadian cultural property (Section 39(1)(a)(i.1)) – same.
d. Calculating Capital Gain for Change in Use from Personal to Income Producing and Vice
i. Deemed disposition at FMV when the property changes from personal use to income-
producing and vice versa (Section 45(1)(a)(i), (ii)).
XII. FINAL CALCULATION
a. Section 62: Moving Expenses for eligible relocation
i. Section 62(1) (a) Not paid by employer, (b) not deductible, (c) max: income that year
[or following year] from new job or business or tuition/scholarship., (d) all allowances
ii. Section 62(2) Kinds of expenses: travel costs (incl. meals/lodging),
transportation/storage, 15 days of meals, lease cancellation, selling costs, legal services
for selling, various costs for old house, transfer of documents…but excludes costs for
iii. Section 248(1): Eligible Relocation: employment in Canada or full time post-
secondary study anywhere, 40 km.
b. Section 63: Child Care Deduction
i. (1) Optional deductions for child care expenses, incurred by taxpayer or supporting
person, if (c) not deducted by another, (d) not subject to reimbursement. Lower-income
person must claim, unless in school or disabled / $10K/a for disabled child, $7K/child
under 7, $4K/child under 16. Other limits for boarding school or camp.
c. Section 56(1)(b) & 60(b): Alimony/Child Support
i. Section 56(1b): Include total amounts received after 1996-child component-previously
1. Section 56.1(4): support must be periodic, for maintenance, and recipient must
have discretion and (a) separated spouse + court order/agreement, or (b) payer
parent + simply court order. [applied strictly]
ii. Section 60(b): may deduct alimony support paid – child component previously
iii. Children: Taxed by payer if arrangement made after 1997; otherwise old regime.