CPA Canada, "Summary of Issues Identified: Capital Gain Inclusion Rate Draft Legislation", 3 September 2024 CPA Canada submission

Summary Under
Tax Topics - Income Tax Act - Section 13 - Subsection 13(7) - Paragraph 13(7)(e)

Formulae in ss. 13(7)(b), (d) and (e) do not properly reflect the change in CGIR and s. 38.01 (pp. 1-4)

  • The formulae in ss. 13(7)(b), (d) and (e) of the August 12, 2024 draft capital gains legislation for computing the step-up in the capital cost of depreciable property where there has been a full or partial change of use or a non-arm’s length transfer produce illogical results. [These formulae were corrected in the September 23, 2024 Notice of Ways and Means Motion.]
Summary Under
Tax Topics - Income Tax Act - Section 38.01 - Paragraph 38.01(b) - Variable E

Variable E extending to transferee (pp. 4-5)

  • Variable E of the formula in s. 38.01 of the August 12, 2024 draft capital gains legislation (allowing an election for the $250,000 threshold to be used for capital gains of an individual from dispositions or deemed dispositions described in any of s. 13(7)(b), (d) or (e)) seems to allow a taxpayer that has acquired capital property and made a joint election with the transferor under 13(7.7) to deduct up to 50% of the amount covered by the election even though the transferee realized no gain on the transfer. Variable E refers to the amount covered under the election but seems to apply both to the transferor and transferee. [This is corrected in the September 23, 2024 Notice of Ways and Means Motion by adding a reference in E to the elected amount being an amount relating to a capital gain of the taxpayer under s. 13(7)(b), (d) or (e)).
Summary Under
Tax Topics - Income Tax Act - Section 96 - Subsection 96(1.72)

Inappropriate results for partners of partnership with a year end before June 25, 2024 (pp. 5-6)

  • Regarding, for example, Aco (with a June 30, 2024 taxation year-end) which was a member of a partnership (with a March 31, 2024 taxation year end) which realized a capital gain on March 1, 2024, given the absence of a rule in the August 12, 2024 draft capital gains legislation to deem partners of a partnership with a taxation year ending before June 25, 2024 to have realized any allocated capital gains from the partnership in Period 1, Aco would have a capital gains inclusion rate of 2/3. [The September 23, 2024 Notice of Ways and Means Motion addressed this by adding a further transitional rule: s. 96(1.73).]