Adjusted cost base: The "tax cost" that is used to determine the capital gain or capital loss realized on the disposition of a capital property. (See definition of capital property.)
The adjusted cost base (ACB) of land will generally be the amount paid for it although adjustments are required in certain situations. If the land was acquired before 1972, its ACB will generally be determined by reference to its fair market value at the end of 1971 (V-day value).
The ACB of buildings and equipment, etc. will generally be the amount paid for it.
The ACB of an interest in a family farm partnership (see definition of family farm partnership) is determined for each partner by reference to the cost of the interest, the capital contributions made to the partnership, the partner's share of profits and losses and his or her drawings. If the partnership existed at the end of 1971 there are some extremely complicated transitional rules to take into account.
The ACB of shares in a family farm corporation (see definition of family farm corporation) will generally be the amount paid for them although adjustments are required in certain circumstances. If the shares were acquired before 1972, their ACB may be determined by reference to their fair market value at the end of 1971 (V-day value).
Administrator: An individual or corporation appointed by a court to administer the estate of a person who dies without making a will, or the estate of a person who dies with a will, but without anyone prepared or able to act as executor.
Agreement for sale: A sale transaction in which the seller receives the sale price over a period of time and retains title to the sold property until all payments are received.
Allowable capital loss:The deductible portion of the capital loss realized on the sale of a capital property. (See definition of capital property.)
Attribution rules:The rules in the Income Tax Act that require income from a property or a capital gain or loss from the disposition of a property to be included in the tax return of a person who does not own the property. These rules apply in certain situations where funds or property are transferred by an individual to his or her spouse or to his or her minor child.
Bequest: A gift received from an individual through a will.
Buy-sell agreement: An agreement between business partners or shareholders which sets out important matters concerning their business relationship, including the manner in which the interests of each of the partners or shareholders are to be purchased on retirement and on death.
Canada Pension Plan: A compulsory social security programme of the federal government that provides a retirement pension and certain other benefits.
Capital beneficiary: A person who is entitled to a share of the assets held in a trust. (See definition of trust.) The interest of a "capital beneficiary" must be distinguished from that of an "income beneficiary". (See definition of income beneficiary.)
Capital cost allowance: The deduction that is allowed for income tax purposes in respect of the reduction in value of buildings, machinery and equipment that occurs through its use. This deduction is often loosely referred to as "depreciation" or C.C.A.
Capital property: A property that is acquired for investment purposes, or use in a business, that will give rise to a capital gain, and not an income gain, if it is sold at a profit. Land, buildings, machinery, equipment, shares in a farm corporation and an interest in a farm partnership will usually be capital property to the farmer.
Clearance certificate: A certificate to be obtained from Canada Customs and Revenue Agency by the personal representative of a deceased taxpayer before distributing the assets of the estate. Failure to obtain the certificate can make the personal representative personally liable for the deceased's outstanding tax liability.
Codicil: An addendum to a will.
Cost
amount:
A term meaning the "tax
value" of a particular property.
The "cost amount" of typical farming properties is as
follows:
Land
- its adjusted cost base (see definition of adjusted cost
base);
Buildings,
- its undepreciated capital cost (UCC) for
equipment,
tax purposes (see definition of UCC);
etc., depreciated
on the reducing
balance basis
Buildings, - its adjusted cost base (see definition of
equipment, etc., adjusted cost base):
depreciated on
straight line basis
Intangible assets - 4/3 times the amount such as
quota of the cumulative eligible capital (see definition);
Interest in a
- its adjusted cost base (see definition of
family farm
adjusted cost base);
partnership
Shares in a
- their adjusted cost base (see definition of
family farm
adjusted cost base).
corporation
Cumulative
eligible capital:
The amount of a taxpayer's undepreciated expenditures made
after 1971 on intangible assets such as quota.
(These intangible assets are called eligible capital
properties - see later definition.)
Earned income: The income that may be contributed (within limits) to a registered retirement savings plan in the year following the year in which it is earned.
Eligible capital property: Intangible properties (such as quota or goodwill) acquired in connection with a business. At the present time, three-quarters of the expenditure on such properties is added to the taxpayer's cumulative eligible capital and depreciated for tax purposes.
Family assets: The assets which, under B.C. Family Law, must be divided between a husband and wife in the event of a marriage breakdown, unless the court otherwise orders.
Family farm corporation: A farming corporation (company) that meets certain tests in the Income Tax Act so that its shares may be transferred from one generation to the next on a "rollover basis". (See definition of "rollover".) All or substantially all of its assets must have been used principally in carrying on a farming business in Canada and the farmer, his spouse or one of his children must have been actively involved in that business on a regular and continuous basis. A holding company will qualify as a family farm corporation in certain situations. (Refer to separate definition of a "share of the capital stock of a family farm corporation" used in connection with the capital gains deduction rules.)
Family farm partnership: A farming partnership that meets certain tests in the Income Tax Act so that the partners' interests may be transferred from one generation to the next on a "rollover basis". (See definition of "rollover".) All or substantially all of its assets must have been used principally in carrying on a farming business in Canada and the farmer, his spouse or one of his children must be actively involved in that business on a regular and continuous basis. (Refer to separate definition of an "interest in a family farm partnership" used in connection with the capital gains deduction rules.)
Family Relations Act: The legislation in British Columbia that deals with the division of assets that occurs when there is a marriage breakdown.
Formal will: A document, usually type-written, setting out an individual's wishes regarding the disposition of assets after his or her death, signed by the individual and two witnesses in the presence of each other.
Guaranteed renewal A clause in a term insurance policy requiring the insurer to renew the policy even when the insured's health deteriorates. (See definition of term insurance.)
Income beneficiary: A person who is entitled to share in the income earned on assets held in trust. (See definitions of trust and capital beneficiary.)
Income-splitting: An arrangement which has the effect of transferring income from a "high tax-rate" person to a "low tax-rate" person so that the overall tax liability is reduced.
"In specie": Assets are distributed from an estate "in specie" if they are distributed in their present form. (The alternative would be to sell them and distribute the cash proceeds.)
Interest in a family A term used in connection with the capital gains deduction
farm partnership: rules to describe a partnership interest that entitles the holder to the $500,000 capital gains deduction. The term is similar (but not identical) to the term "family farm partnership" (see Glossary) which describes a farming partnership that entitles the partners to transfer their interests to their children on a rollover basis. For purposes of the capital gains deduction, the partnership need not carry on the business of farming itself. Its property may be used in the business of farming by the individual partner, his or her spouse, children or parent or certain other entities. Throughout a period of at least two years more than 50% of the value of its assets must represent property that has been used principally in the business of farming in Canada and the partner, his or her spouse, child or parent must have been actively engaged in that business on a regular and continuous basis. At the time of sale of the interest, at least 90% of the value of its assets must represent property that has been used principally in the business of farming in Canada.
Inter-vivos: An "inter-vivos" transaction of a particular person is one carried out during his or her lifetime rather than after death.
Intestate: The term used to describe the estate of a person who dies without leaving a will.
Investment expenses: Expenses which may restrict an individual's ability to use the capital gains deduction. These expenses include net rental losses, interest on funds borrowed to acquire passive investments, losses from interests in limited partnerships and 50% of certain tax shelter deductions (see definition of investment income).
Investment income: Income of an investment nature that offsets investment expenses and makes it easier to use the capital gains deduction. This income includes dividends, interest and income from rental properties (see definition of investment expense).
Issue: All persons descended from a common ancestor.
Joint tenancy: A form of co-ownership under which the interest of a deceased person automatically passes to the co-owners.
Letters of Administration: A court-approved document giving a person the right to administer the estate of a person who dies without leaving a will.
Life annuity: An annuity that is payable throughout the life of the annuitant. There may be a guaranteed minimum pay-out period or a "joint and last survivor option" under which payments continue until the death of the survivor of the taxpayer and his or her spouse.
Life estate: An interest in property limited in time to the life of a particular person.
Old Age Security: The "old age" pension payable by the federal government to persons who meet the age and residence tests.
Permanent insurance: A type of life insurance that continues its coverage through to the death of the person insured. (See definition of term insurance.)
Personal trust: A term used in connection with the capital gains deduction rules which is defined to include testamentary trusts (see Glossary) and most inter-vivos trusts.
Per stirpes: The basis of dividing the share of a deceased beneficiary amongst his or her descendants according to their relationship to the deceased. (e.g. A father dies and is survived by his son and two children of his deceased daughter. On a per capita basis each would receive one-third whereas on a per stirpes basis the son would receive one-half and each grandchild would receive one-quarter.)
Principal residence: An owner-occupied home that can be sold at a profit without paying income tax.
Qualifying farm assets: A term used in this publication to describe the farming assets that can be transferred by an individual to his or her child on a rollover basis (see Glossary for meaning of "rollover"). The property is:
land;
buildings, equipment, etc. depreciated for income tax purposes on the reducing balance basis;
eligible capital property (e.g. quota) (see definition);
a family farm corporation (see definition); and
a family farm partnership (see definition).
The land, buildings and equipment, etc. must be owned by the individual and, prior to the transfer, must have been used by him, his spouse, or any of his children principally in the business of farming in Canada . Moreover, the individual, his spouse or his children must have been actively engaged in the business on a regular and continuous basis.
Registered Retirement A fund administered by a financial institution
Income Fund: and registered with Canada Customs and Revenue Agency, into which an individual can transfer his or her accumulated registered retirement savings plan monies on retirement. The individual would then withdraw amounts from the fund throughout the remainder of his or her life.
Registered Retirement A plan offered by a financial institution and registered
Savings Plan: with Canada Customs and Revenue Agency that allows an individual to save for his or her retirement by contributing amounts to the plan each year. Within limits, the amount contributed is deductible from the individual's income and compounds free of tax while it is held in the plan.
Representation Agreement Act: B.C. legislation that came into force in 2000 that significantly expands upon the scope of enduring powers of attorney.
Reserve: A deduction that may be claimed for income tax purposes in a particular year where a taxpayer sells a property and the sale price is payable over a period that extends beyond the end of that year.
Rights or things: The term given to items such as livestock, inventories and accounts receivable of a "cash-basis farmer" that are given special treatment in the final income tax return of a deceased individual.
Rollover: A term used in this book to describe a transfer of property in which the person disposing of the property is not automatically taxed as though he or she received fair market value. Property disposed of in a "rollover" transaction is usually treated as having been transferred at a value between its cost amount (see Glossary) and fair market value.
Share of the capitalstock of a family farm A share in a farm corporation (company) that entitles the shareholder to the $500,000 capital gains deduction.
corporation: The term is similar (but not identical) to the term "family farm corporation" (see Glossary) which describes a farming corporation that entitles the shareholders to transfer their shares to their children on a rollover basis. For purposes of the capital gains deduction, the corporation need not carry on the business of farming itself. Its property may be used in the business of farming by the individual shareholder, his spouse, children or parent or certain other entities. Throughout a period of at least two years more than 50% of the value of the company's assets must generally represent property that has been used principally in the business of farming in Canada; and the farmer, his spouse, child or parent must have been actively engaged in that business on a regular and continuous basis. At the time of the sale of the share, at least 90% of the value of the company's assets must generally represent property that has been used principally in the business of farming in Canada.
Siblings: Brothers or sisters.
Sole proprietorship: A business carried
on by an individual.
Spouse: For purposes of the Income Tax, a spouse includes a common-law spouse.
Spouse trust: A trust established by a taxpayer for the benefit of his spouse. Property transferred to such a trust is deemed to be disposed of for income tax purposes on a "rollover basis" if certain requirements are met.
Taxable capital gains: The taxable portion of the profit realized on the disposition of a capital property. (See definition of capital property.)
Tenancy in common: A form of co-ownership under which the co-owner's interest can be gifted, sold or bequeathed to any person.
Term annuity: An annuity payable for a specified number of years.
Terminal loss: The undepreciated capital cost (UCC) of a particular fixed asset class that can be deducted from income when all assets of that class have been disposed of. (See definition of UCC.) There are rules which restrict the deduction of a terminal loss by a corporation, trust or partnership in certain situations.
Term insurance: A type of life insurance that is usually less expensive than other types and is renegotiated on the policy anniversary date. It becomes progressively more expensive as the individual becomes older and may become non-renewable if the individual's health deteriorates and there is no guaranteed renewal clause in the policy. (See definitions of guaranteed renewal clause and permanent insurance.)
Testamentary trust: A trust established by the will of a deceased individual. (See definition of trust.)
Testator/Testatrix: The person who makes a will (testator - male; testatrix - female).
Trust: An arrangement under which assets are set aside by an individual and administered by a trustee for the benefit of another person.
Undepreciated capital cost (UCC): The undepreciated expenditures in respect of buildings, machinery and similar properties, calculated by asset class and written off on a reducing balance basis.
Vest indefeasibly: A property "vests indefeasibly" if the person acquiring it obtains a right to absolute ownership in such a manner that the right cannot be taken away by any future event.
Wills Variation Act: A statute in British Columbia that allows a court to vary the provisions of a will if it considers that the testator has not provided adequately for his or her spouse or children.
