The objective of this course is to provide a working knowledge of section 85 and its environment. A “working knowledge” refers not to an expertise, but rather to an ability to recognize difficulties, research the problem adequately, understand the research results, and apply the results to resolve the problem. This course addresses §85 from both the technical and the conceptual perspective. Proficiency in both is essential to achieving the course objective. Emphasis has been placed on the common tax situations and circumstances surrounding the Canadian small business corporation and resident individuals.

This course is based on the Income Tax Act as it stood at January 2, 2012, R.S.C. 1985 Chapter 1 (5th supplement). Any relevant pending legislation has been incorporated into these materials as if it had been passed into law.  Should any of that pending legislation not be implemented there would be no material effect on the course.

This course is comprised of eleven modules. At the end of some modules there is a short section of review questions with suggested solutions. There are two online quizzes to test your understanding of the concepts.

Some of the more important Interpretation Bulletins (ITs), Information Circulars (ICs), and forms referred to in the modules are included as Appendices. Please note that these ITs and ICs may not reflect the most current version of the law.

You are expected to have a current Income Tax Act or have access to an up-to-date tax service.

Module 1A “The essentials of section 85” Purpose, properties, and required tax filings
Purpose
The parties
Qualifying property
§85 administration

Module 1B “The essentials of section 85” The basic parameters and the consideration
§85(1): The basic range
Special rule(s)
Cost of the consideration received

Module 1C “The essentials of section 85” Loss properties
Loss properties
Transfers of loss properties
Meaning of control
Review questions/solutions

Module 2A “Special rule properties” Eligible capital property
Eligible capital property (ECP)

Module 2B “Special rule properties” Depreciable property and other properties
Depreciable property of a prescribed class
Special rule overriding conflicts between deemed agreed amounts
Additional §85(1) matters

Module 3A “Consideration received” Notably shares and their fair market value
Consideration of less than equal value
Fair market value
Consideration exceeds equal value

Module 3B “Consideration received” PUC reductions
PUC reductions (tax PUC)
Review questions/solutions

Quiz 1

Module 4A “Transferring shares held as capital property” Section 84.1
§84.1: PUC reductions, deemed dividends, and “modified ACB”

Module 4B “Transferring shares held as capital property” Potential alternatives — Sections 86,  85.1, and 51
§86(1) Intra-corporate share exchange
§85.1 Inter-corporate share exchange
§51 Convertible Property
Review questions/solutions

Module 5A “Additional compliance and planning matters” FMV to Offside 86
Fair market value (FMV)
FMV: Price-adjustment clauses
Estate freezes
Crystallization
Offside 86

Module 5B “Additional compliance and planning matters” Butterflies to Double taxation
Butterflies
Purification
Incorporation to access §110.6
Capital gain stripping
Double taxation
Review questions/solutions

Quiz 2

Summary

Appendices

List of abbreviations

 

J. Thomas McCallum, FCGA, CBV, has practiced in the tax discipline since 1967. He is currently based in Ontario and restricts his practice to business valuation and income tax consulting. He has conducted over thirteen hundred seminars throughout Canada, Barbados, and the United States. Tom has been the coordinator of CGA Magazine’s monthly “Tax Strategy” column since its inception in 1989, and has authored several online courses and articles which can be found on the CGA Professional Development Network. Active in the Certified General Accountants Association, Tom is a past president of CGA Ontario.