• Identify the criteria to distinguish between capital gains and business income.

DISCUSSION OVERVIEW

 

The distinction between capital assets and inventory is important since the disposition of these two types of property will produce different sources of income that result in different tax consequences. As you have previously learned, business income (or losses) from the sale of inventory is fully taxable (or fully deductible) for tax purposes. This differs from capital gains (or capital losses), which are only one-half taxable (or one-half deductible against capital gains) for tax purposes.

 

Post a response to the following items on the discussion board:

 

1. A corporation can earn various sources of income. List examples of passive sources of income for a corporation. What is the difference between these sources of income and a corporation's "active business income?"

 

2. List and briefly describe each of the factors to be considered in determining whether property should be considered capital asset or inventory. Be sure to include an explanation of which of the factor(s) are most important in this determination.

 

3. Based on your review of Income Tax Interpretation Bulletin IT-218R, briefly describe one example of when a disposition of real estate would result in business income and one example of when a disposition of real estate would result in a capital gain or capital loss.

 

References:

 

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it459/archived-adventure-concern-nature-trade.html

 

https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it218r/archived-profit-capital-gains-losses-sale-real-estate-including-farmland-inherited-land-conversion-real-estate-capital-property-inventory-vice-versa.html

Answer rating: 100% (QA)

1 Passive sources of income for a corporation may include rental income interest income dividend inc... View the full answer