BYRD & CHEN'S CANADIAN TAX PRINCIPLES
1ST EDITION. VOLUME 1, VOLUME 2 BY
CLARENCE BYRD, IDA CHEN. ISBN-13:
9780137856527
, Chapter 11
11.1 Online Exercises
) ITA 110 . 2 p ro v id e sfo r ad e d u c tio n o f " lump- sum
1
p ay men ts", f o r e x a m p le a c o u r to r d e r e d te r m in a t i
on
benefit. Wh a t a x p o l i cy o b j e c t iv e i s s e r v ed b y t h i s
provision?
An sw e r: S u c h lu m p - sum
paymen tsoftenreflectco mpen sationforserv icesr
enderedoverseveralyears.
Thefacthatitisreceivedinasingleyearcanresul
tin sign if icantpor tio n sof itb ein g sub jecto incom
etax
rateshigherthanwouldhavebeenthecasehaditbee
nreceivedoverthesev eralyearsduringwhichitw a
s
earned. T h e d e d u c t i o n o f s u c h a m o u n t s p r o v i d e st h e
basisforanalternativeincometaxpayable
calcu latio n wh ich atemp tsto ad ju sth eamo un tp aid
totheamounthatwouldhavebeenpaidifthe
amo un th ad actu aly b een receiv ed ov ersev eraly ear
s. T h e o b j e c ti v e o f su c h p r o v i s i o n s i s f a ir n e so r
equity.
Type: ES
Topic: Lump- sum payments- ITA 110 . 2
) T h ecar y o v erp er io d sfor lo sesv ar ies w ith th ety
2
peoflo s. Br ief ly d e scr ib eth e car y o v e r p er io d s th
at
th eIT Apr ov id esfor th ety pesoflo sesthatitid en
tifies.
An swer : Th e c a r y o v e r p e r io d s f o r th e v a r io u s t y p e s o
f lo sesid en tif ied in th e Income Tax Actand
cov er edinthetex tup to Ch apter11 areasfolows:
• Non- Capital Losesand Farm
Lo ses( in clud ingrestric ted farm
loses): 20 y ear sf o r w ar d an d 3 years back.
• N et C ap ital Los: U n l i m it e d f o r w a r d a n d 3 yearsback
• Listed Per so n al Pro p erty Lo ses: 7 y e arsf o r wa r d a n
d3 yearsback .
, • Alo w ab le Bu sin es In v e st m en t Lo ses: 10 years, asa
n on -cap italo sth en conv erted to n etcap italo s
with un lim ited caryfor ward in year11 .
• Foreign Tax Cr ed its:1 0 y e a r sf o r w a r d a n d 3 y ear sb a
ck.
Coveredin C h ap ter 18 arelimitedpartnershiploses.
Theyhavenocarybackandanunlimitedcary
fo rward,bu to n ly ag ain sth ep artn ersh ipin co meto wh
ichtheyrelate.
Type: ES
Topic: Lo s ca ryov er s - generalconcepts
) Whenabu sin eshasseveraltypesoflo scaryovers
3
, w h y i s itn e c e s a r y to k e e p s e p a r a te b a l a n c e s f o r
eachtype?
An swer : Th e r e a r e t wo r e a so n sf o r h a v i n g to tr a c k e a c
h ty p eof lo sc ar yf or war d s ep ar ately . Fir st,
differentypesofloseshavedifferentcaryoverperio
ds(e. g., 20 y ear sf o r f ar m lo sesv s. u n lim ited f o r
cap italo se s) . Second, so m ety p e so f l o s e s can o n ly b
eap l i e d a g a i n s th e e q u i v a l e n t y p e o f i n c o m e
(e.g.,cap italo sescano n ly becaried ov erand ap
liedaga instcapita lgain s).
Type: ES
Topic: Lo s ca ryov er s - generalconcepts
, ) Taxadvisorswilnormalyrecommendth atlo scary
4
o v er sn o tb eu sed to red u c e tax ab le in co m e to n il
f or an in d iv idu al. Wh a t i s t h e b a s i s f o r th i s r e c o m m
endation?
An sw er: T h i sr e c o m m e n d a t i o n r e f l e c t st h e f a c t h a t
m o s t p er s o n a l t a x cr e d it s a r e n o n - r efu n d ab leand
can
o tb e c a r i e d o v e r t o o t h e r y e a r s . T h is m e a n s th a t, u
nles a n in d iv id u a lt a x p a y e r h a s ta x a b l e in c o m e
a n d f e d er a lin co m e ta x p a y ab le, th ev a lu eo f th e se
cr ed its i s s im p ly lo s t. This, in eff ect, is w h a tw o u
ld hap
enifvarioustypesofloscaryoverswereusedtore
ducetaxableincometonil.
Type: ES
Topic: Lo s c aryov er s - individual
) Brief ly d escrib eth ein co metax treatme n to flo s
5
esonlistedpersonalproperty.
An swe r : Lo s e s o n l i s t e d p e r s o n a lp r o p e r ty c a n b e d e
d u c te d d u r in g th e cu r e n ty e ar , b u to n ly ag a in s tn e t
g a in s o n lis te d p er s o n a lp r o p er ty f o r th e y e ar . Ift
h elo scan o t b e u s e d d u r in g th e c u r e n t y e a r , itcan b e
car ied back threey ear sorfor ward seveny ear s.
Type: ES
Topic: Loses- listedpersonalproperty
) If ataxp ay er hasbo thn etcapitalandno n
6 -
cap italo se sa nd d o esn o th av esu fficien tin co m ei
nthe cu r en t an d p r ev io u s y ear s to c la i m
th e se a m o u n t s, w h i c h ty p e o f lo ssh o u ld b e d e d u c
tedfirst?
Answer: T h e r e i s n o c le a r cu t a n s w e r to th i s q u e s t i o
n. N et c ap i ta lo s e sh av ea n u n lim it ed l if eb u t c an
onlybecariedovertotheextentofnetaxablecapit
algainsinth ecaryoverperiod.
Thiswouldsugesthat,ifnetaxablecapitalgain s
ar ep re sen tin th ecu ren ty ear , theu seo fnetcap it
al
l o s e s s h o u l d r e c e i v e p r i o r i t y . Thiswouldbepart
1ST EDITION. VOLUME 1, VOLUME 2 BY
CLARENCE BYRD, IDA CHEN. ISBN-13:
9780137856527
, Chapter 11
11.1 Online Exercises
) ITA 110 . 2 p ro v id e sfo r ad e d u c tio n o f " lump- sum
1
p ay men ts", f o r e x a m p le a c o u r to r d e r e d te r m in a t i
on
benefit. Wh a t a x p o l i cy o b j e c t iv e i s s e r v ed b y t h i s
provision?
An sw e r: S u c h lu m p - sum
paymen tsoftenreflectco mpen sationforserv icesr
enderedoverseveralyears.
Thefacthatitisreceivedinasingleyearcanresul
tin sign if icantpor tio n sof itb ein g sub jecto incom
etax
rateshigherthanwouldhavebeenthecasehaditbee
nreceivedoverthesev eralyearsduringwhichitw a
s
earned. T h e d e d u c t i o n o f s u c h a m o u n t s p r o v i d e st h e
basisforanalternativeincometaxpayable
calcu latio n wh ich atemp tsto ad ju sth eamo un tp aid
totheamounthatwouldhavebeenpaidifthe
amo un th ad actu aly b een receiv ed ov ersev eraly ear
s. T h e o b j e c ti v e o f su c h p r o v i s i o n s i s f a ir n e so r
equity.
Type: ES
Topic: Lump- sum payments- ITA 110 . 2
) T h ecar y o v erp er io d sfor lo sesv ar ies w ith th ety
2
peoflo s. Br ief ly d e scr ib eth e car y o v e r p er io d s th
at
th eIT Apr ov id esfor th ety pesoflo sesthatitid en
tifies.
An swer : Th e c a r y o v e r p e r io d s f o r th e v a r io u s t y p e s o
f lo sesid en tif ied in th e Income Tax Actand
cov er edinthetex tup to Ch apter11 areasfolows:
• Non- Capital Losesand Farm
Lo ses( in clud ingrestric ted farm
loses): 20 y ear sf o r w ar d an d 3 years back.
• N et C ap ital Los: U n l i m it e d f o r w a r d a n d 3 yearsback
• Listed Per so n al Pro p erty Lo ses: 7 y e arsf o r wa r d a n
d3 yearsback .
, • Alo w ab le Bu sin es In v e st m en t Lo ses: 10 years, asa
n on -cap italo sth en conv erted to n etcap italo s
with un lim ited caryfor ward in year11 .
• Foreign Tax Cr ed its:1 0 y e a r sf o r w a r d a n d 3 y ear sb a
ck.
Coveredin C h ap ter 18 arelimitedpartnershiploses.
Theyhavenocarybackandanunlimitedcary
fo rward,bu to n ly ag ain sth ep artn ersh ipin co meto wh
ichtheyrelate.
Type: ES
Topic: Lo s ca ryov er s - generalconcepts
) Whenabu sin eshasseveraltypesoflo scaryovers
3
, w h y i s itn e c e s a r y to k e e p s e p a r a te b a l a n c e s f o r
eachtype?
An swer : Th e r e a r e t wo r e a so n sf o r h a v i n g to tr a c k e a c
h ty p eof lo sc ar yf or war d s ep ar ately . Fir st,
differentypesofloseshavedifferentcaryoverperio
ds(e. g., 20 y ear sf o r f ar m lo sesv s. u n lim ited f o r
cap italo se s) . Second, so m ety p e so f l o s e s can o n ly b
eap l i e d a g a i n s th e e q u i v a l e n t y p e o f i n c o m e
(e.g.,cap italo sescano n ly becaried ov erand ap
liedaga instcapita lgain s).
Type: ES
Topic: Lo s ca ryov er s - generalconcepts
, ) Taxadvisorswilnormalyrecommendth atlo scary
4
o v er sn o tb eu sed to red u c e tax ab le in co m e to n il
f or an in d iv idu al. Wh a t i s t h e b a s i s f o r th i s r e c o m m
endation?
An sw er: T h i sr e c o m m e n d a t i o n r e f l e c t st h e f a c t h a t
m o s t p er s o n a l t a x cr e d it s a r e n o n - r efu n d ab leand
can
o tb e c a r i e d o v e r t o o t h e r y e a r s . T h is m e a n s th a t, u
nles a n in d iv id u a lt a x p a y e r h a s ta x a b l e in c o m e
a n d f e d er a lin co m e ta x p a y ab le, th ev a lu eo f th e se
cr ed its i s s im p ly lo s t. This, in eff ect, is w h a tw o u
ld hap
enifvarioustypesofloscaryoverswereusedtore
ducetaxableincometonil.
Type: ES
Topic: Lo s c aryov er s - individual
) Brief ly d escrib eth ein co metax treatme n to flo s
5
esonlistedpersonalproperty.
An swe r : Lo s e s o n l i s t e d p e r s o n a lp r o p e r ty c a n b e d e
d u c te d d u r in g th e cu r e n ty e ar , b u to n ly ag a in s tn e t
g a in s o n lis te d p er s o n a lp r o p er ty f o r th e y e ar . Ift
h elo scan o t b e u s e d d u r in g th e c u r e n t y e a r , itcan b e
car ied back threey ear sorfor ward seveny ear s.
Type: ES
Topic: Loses- listedpersonalproperty
) If ataxp ay er hasbo thn etcapitalandno n
6 -
cap italo se sa nd d o esn o th av esu fficien tin co m ei
nthe cu r en t an d p r ev io u s y ear s to c la i m
th e se a m o u n t s, w h i c h ty p e o f lo ssh o u ld b e d e d u c
tedfirst?
Answer: T h e r e i s n o c le a r cu t a n s w e r to th i s q u e s t i o
n. N et c ap i ta lo s e sh av ea n u n lim it ed l if eb u t c an
onlybecariedovertotheextentofnetaxablecapit
algainsinth ecaryoverperiod.
Thiswouldsugesthat,ifnetaxablecapitalgain s
ar ep re sen tin th ecu ren ty ear , theu seo fnetcap it
al
l o s e s s h o u l d r e c e i v e p r i o r i t y . Thiswouldbepart
