Capital Losses vs Non-Capital Losses

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Capital Losses vs Non-Capital Losses

Capital Losses vs Non-Capital Losses

 Capital Losses Vs. Non-Capital Losses

 Capital Loss

A capital loss arises when you sell a capital property you own for less than its adjusted cost base. A capital loss can be carried back three years and forward indefinitely. The inclusion rate for a capital loss is as follows:

Year Inclusion Percentage
Before 1988 50%
1988 and 1989 67%
1990 to 1999 75%
Jan 1 to Feb 27, 2000 75%
Feb 28 to Oct 16, 2000 67%
Oct 17 to Dec 31, 2000 50%
2001 to present 50%

Non-Capital Loss (Business loss)

A non-capital loss arises when you incur  any loss from employment, property or a business. The carry-forward periods are:

Year of Loss Carry Forward Period Carry Back Period
Taxation years ending March 22, 2004 7 Years 3 Years
Taxation years ending after March 22, 2004 10 Years 3 Years
Taxation years ending after 2005 20 Years 3 Years

Capital Losses vs. Business Losses 

A capital loss can only be applied to reduce a capital gain. However, a business loss has more flexibility and it can be applied to reduce a capital gain or other income. In the case of Mr. Prochuk vs. Queen he tried to argue his losses were business losses and could be used to reduce other income. Mr. Prochuk was not successful in arguing his claim because he did not meet the criteria for a business loss. Mr. Prochuk was an engineer turned investor, he should have considered the following seven factors to determine if his losses were capital or non-capital.

The factors to be considered for a investment transaction to determine the type of loss:

  1. The number of transactions
  2. The intention of the purchaser when buying the securities
  3. The length of time that the securities are held
  4. The quality of the securities
  5. The time devoted to stock market transactions
  6. The extent of borrowing
  7. The taxpayer’s expertise or special knowledge in the securities market

The court concluded that Mr. Prochuk had acquired his investment for a long-term and was a passive investor, therefore his losses would be capital losses not business losses.

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SDVC LLP Chartered Accountants is an accounting firm located in Mississauga, Ontario. Serving the needs of Small Business Owners & Entrepreneurs. Contact us for CRA Audit help, tax planning, review engagements, and audit engagements. 

Capital Gains vs Business Income

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Capital Gain vs. Business Income

Capital Gains vs. Business Income

Capital Gains vs Business Income

As indicated in our previous articles, the housing market in Canada has attracted many investors. This has allowed real estate investors to make a quick profit. The popularity has also been fueled by the preferred tax treatment on capital gains. In Canada only 50% of the capital gain is taxable at your marginal tax rate.This has allowed taxpayers to shelter large portion of their income from the tax man. However, you should be aware that not all income qualifies as a capital gain. It could be taxed as business income, in which case 100% of the amount is subject to tax.

For example, to determine if the rental income qualifies as a capital gain or business income the following Six factors are considered as cited in Ayala v. The Queen:

  1. The nature of the property sold;
  2. The length of time the taxpayer was in possession as owner of the property;
  3. The frequency and number of operations carried out by the taxpayer;
  4. The improvements made by the taxpayer to the property;
  5. The circumstances surrounding the sale of the property; and
  6. The taxpayer’s intention at the time the property was acquired, as indicated by the taxpayer’s actions.

In the case of Montreal tax payer who sold six of her real estate properties and reported the income as a capital gain, her appeal was denied and income was assessed as business income. The judge in this case concluded that the Montreal taxpayer was probably and likely had acquired the properties “for the purpose of reselling them at a profit at the earliest opportunity rather than considering them as long‑term investments.” The taxpayers appeal was denied and her income assessed as business income forcing her to pay tax on 100% of the sale proceeds.

These rulings will impact many different business and industries. It is critical taxpayers seek adequate legal and tax advise when making decisions.

Capital Losses vs Business Losses 

When it comes to capital losses vs business losses the opposite is also true. A capital loss can only be applied to reduce a capital gain. However, a business loss has more flexibility and it can be applied to reduce a capital gain or other income. Read our article on capital losses vs business losses to gain more insight.

Capital Losses vs. Business Losses

SDVC LLP – Chartered Professional Accountants  is an accounting firm located in Mississauga, Ontario. Serving the needs of Small Business Owners & Entrepreneurs. Contact us for Tax Help, Personal Tax, Corporate Tax, Year End Financials, Review Engagements, Audit Engagements, Accounting & Estate Taxes.

CRA Auditing – HST New Housing Rebates

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Goods and Services Tax/Harmonixed Sales Tax (GST/HST) New Housing Rebate

Goods and Services Tax/Harmonized Sales Tax (GST/HST) New Housing Rebate

The Canadian Market

The housing market in Toronto and the suburbs has been booming over the last several years. This has allowed investors from all over the world to cash in. The strategy was to purchase a newly constructed home or condominium unit from the builder and sell it a few months later for profit. This strategy seemed like people had finally figured out how to pull ahead in this struggling economy. For some this had even become a full time job with endless rewards. With the Canada Revenue Agency (CRA) only taxing half of the capital gain this was the right way to retain your money.

HST New Housing Rebate

With the CRA looking to increase tax revenues they started reviewing the New Housing Rebate applications  and determined a large number of people had claimed the GST/HST New Housing Rebate incorrectly. They were able to determine a large number of investors never even moved into the newly constructed property but they had sold it few months after they took possession. In this case they would not qualify for the rebate and they would be required to pay the HST balance to the CRA. A lot of investors had already sold the property and had failed to collect HST on the sale, which would mean they were still required to pay back the HST. This was a sticky situation with some investors on the hook for over $24,000. In some instances the CRA waited 3 years to reassess the taxpayer. Read more

How to setup a business in Ontario?

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What type of structure is right for you?

How to setup a business in Ontario?

Setting up a business can be an overwhelming task with a lot to comprehend. It all starts with a dream and a vision, but how do you turn that dream into reality. The dream of becoming your own boss and having the freedom to make your own decisions can be a complicated one at the beginning. Once you have determined on the actual business and its inner workings, you will have to move on to the next step of executing that business. This is where a lot of people get stuck and don’t really know where to go next.

In this article I will explore and shed light on several different business structures available in Ontario. I will also explain how to be in compliance with Canada Revenue Agency (CRA) tax obligations.

The three most common structures are Sole proprietorship, Partnership, and Incorporation.

Read more