Chapter 15
Capital Dividend Account
Capital dividends can be paid out tax free; Must file a joint election applies only to private corps; accumulates 5 components:
- untaxed portion of net capital gains plus
- capital dividends rec’d from other corps
- untaxed portion of net gains on disposition of ECP plus
- net life insurance proceeds arising on death less
- capital dividends paid
Section 22 Election
Purchaser must include in income the difference between the face amount and amounts paid
Will allow the purchaser to deduct a reasonable reserve for doubtful debts on A/R purchased and to deduct any bad debts as they occur
Vendor (regardless of s22), must add reserve to income; s22 causes it to be a business loss instead of capital loss
Joint election however, to be eligible must dispose of “all or substantially all” of the business assets to a purchaser who must propose to carry on the business.
Buyers and sellers each have their own biases
Generally, buyers prefer to buy assets (to buyers prefer to buy assets (to increase tax basis in assets, eg. UCC) and sellers prefer to sell shares (to benefit from 50% capital gains rate; capital gains exemption)

Chapter 16:
Transfer of property with a terminal loss
A taxpayer can realize a terminal loss on the transfer of property under S85 to a corp. but there is no benefit to using S 85 should just sell the property at FMV and take cash or debt
If a corp, partnership, trust or an individual transfers property under S85 to an affiliated corp. any terminal loss on the transfer is denied
The loss is kept in the UCC class of the transferor and can continue to take CCA on the loss until the asset is sold by the transferee to a third party
Transfer of property with a capital loss
A capital loss is denied on the transfer of property where the transferor is affiliated with the transferee
If the transferor is an individual, the denied loss is added to the ACB of the property held by the transferee
If the transferor is a corp, trust or partnership then the denied capital loss retained by the transferor and recognized when the asset is sold to a non-affiliated personν prepaids: not usually considered capital property therefore not eligible
Land held as inventory- not eligible
Items with a terminal or capital loss on disposition- no benefit to using s 85; Property with a capital loss doesnot need to be transferred under S85 as there is no benefit doing so should just sell the property at FMV and take back debt as consideration for the sale
A/R - will want to use s 22 election where possible if there is a loss on the transfer to avoid the loss being a capital loss

Chapter 17

Chapter 18