Thursday, May 04, 2006
Budget Fishers Details
Capital Gains of Fishers
When individuals sell or transfer property used in a fishing business, the property is not currently eligible for the $500,000 lifetime capital gains exemption that is available for farm property and small business shares, nor generally for the intergenerational rollovers applicable to farming property.
Budget 2006 proposes a number of income tax measures concerning dispositions by an individual of property used in a family fishing business. The measures, which are described in more detail below, will apply to dispositions of fishing property and qualified fishing property that take place on or after May 2, 2006.
Intergenerational Rollover: Transfers of Fishing Property to a Child
As a general rule, if property of an individual is transferred (either by way of an inter vivos transfer, or as a consequence of the individual’s death) to the individual’s child or grandchild, the transfer is treated as having taken place at fair market value. Any resulting gain or loss is included in computing the individual’s income.
Budget 2006 proposes to allow a tax deferral in certain circumstances where an individual’s fishing property is transferred to the individual’s child or grandchild.
For the purpose of the new measures, fishing property will be land, depreciable property and eligible capital property that is used principally in a fishing business carried on in Canada in which the individual, or the individual’s spouse or common-law partner, parent, child or grandchild, was actively engaged on a regular and continuous basis. It will also include shares of the capital stock of family fishing corporations and interests in family fishing partnerships. Definitions of these terms and related terms will parallel the existing definitions in the Income Tax Act in respect of the tax deferral (rollover) for intergenerational transfers of shares of a family farm corporation, or of an interest in a family farm partnership.
Under the intergenerational rollover, the individual’s proceeds of disposition and the child’s (or grandchild’s) cost of the property would generally be set at the individual’s cost amount of the property. In the case of eligible capital property, the individual’s proceeds and the child’s (or grandchild’s) cost of the property are determined in a manner that would result in no income, gain or loss to the individual and permit the child (or grandchild) to assume the individual’s tax position in respect of that property. In the case of depreciable property, any deferred recapture will be taken into account in computing any potential recapture on a subsequent disposition of the property by the child (or grandchild). Similar rules will apply in respect of eligible capital property.
Special rules, similar to the existing provisions applicable to the intergenerational rollovers for farm property, will apply where the individual actually receives proceeds of disposition.
Lifetime Capital Gains Exemption—Qualified Fishing Property
This budget measure proposes that an individual be allowed access to the $500,000 lifetime capital gains exemption (LCGE) in respect of capital gains arising on a disposition of qualified fishing property.
Qualified fishing property will include real property, fishing vessels and eligible capital property used principally in a fishing business carried on in Canada in which the individual, or the individual’s spouse or common-law partner, parent, child or grandchild, was actively engaged on a regular and continuous basis. It will also include shares of the capital stock of family fishing corporations and interests in family fishing partnerships, of the individual. The definitions of the terms "qualified fishing property", "share of the capital stock of a family fishing corporation" and "interest in a family fishing partnership" and related terms will generally be similar to existing definitions provided for the terms "qualified farm property", "share of the capital stock of family farm corporation" and "interest in a family farm partnership" and related terms for the purposes of the LCGE.
As a general rule, one half of gains from the disposition of eligible capital property are included in computing an individual’s business income. However, existing provisions in the Income Tax Act allow individuals to report a gain from the disposition of an eligible capital property that is a qualified farm property as a capital gain for the purposes of the determining the individual’s eligibility for the LCGE. In order to provide comparable treatment, Budget 2006 proposes measures that will extend the scope of these provisions to include eligible capital property, such as an interest in a fishing licence, that is qualified fishing property.
Reserve Allowed on Certain Dispositions of Fishing Assets
In computing a taxpayer’s capital gain for a taxation year from the disposition of a capital property, a taxpayer is permitted to claim a reasonable reserve in respect of amounts of proceeds that have not been received by the taxpayer. The maximum reserve period is generally limited to five years. However, special rules apply in respect of transfers by an individual of farm property to an individual’s child or grandchild to increase the maximum reserve period to 10 years. Budget 2006 proposes measures that will extend the scope of this measure to include fishing property as defined for the purposes of the intergenerational rollover.
When individuals sell or transfer property used in a fishing business, the property is not currently eligible for the $500,000 lifetime capital gains exemption that is available for farm property and small business shares, nor generally for the intergenerational rollovers applicable to farming property.
Budget 2006 proposes a number of income tax measures concerning dispositions by an individual of property used in a family fishing business. The measures, which are described in more detail below, will apply to dispositions of fishing property and qualified fishing property that take place on or after May 2, 2006.
Intergenerational Rollover: Transfers of Fishing Property to a Child
As a general rule, if property of an individual is transferred (either by way of an inter vivos transfer, or as a consequence of the individual’s death) to the individual’s child or grandchild, the transfer is treated as having taken place at fair market value. Any resulting gain or loss is included in computing the individual’s income.
Budget 2006 proposes to allow a tax deferral in certain circumstances where an individual’s fishing property is transferred to the individual’s child or grandchild.
For the purpose of the new measures, fishing property will be land, depreciable property and eligible capital property that is used principally in a fishing business carried on in Canada in which the individual, or the individual’s spouse or common-law partner, parent, child or grandchild, was actively engaged on a regular and continuous basis. It will also include shares of the capital stock of family fishing corporations and interests in family fishing partnerships. Definitions of these terms and related terms will parallel the existing definitions in the Income Tax Act in respect of the tax deferral (rollover) for intergenerational transfers of shares of a family farm corporation, or of an interest in a family farm partnership.
Under the intergenerational rollover, the individual’s proceeds of disposition and the child’s (or grandchild’s) cost of the property would generally be set at the individual’s cost amount of the property. In the case of eligible capital property, the individual’s proceeds and the child’s (or grandchild’s) cost of the property are determined in a manner that would result in no income, gain or loss to the individual and permit the child (or grandchild) to assume the individual’s tax position in respect of that property. In the case of depreciable property, any deferred recapture will be taken into account in computing any potential recapture on a subsequent disposition of the property by the child (or grandchild). Similar rules will apply in respect of eligible capital property.
Special rules, similar to the existing provisions applicable to the intergenerational rollovers for farm property, will apply where the individual actually receives proceeds of disposition.
Lifetime Capital Gains Exemption—Qualified Fishing Property
This budget measure proposes that an individual be allowed access to the $500,000 lifetime capital gains exemption (LCGE) in respect of capital gains arising on a disposition of qualified fishing property.
Qualified fishing property will include real property, fishing vessels and eligible capital property used principally in a fishing business carried on in Canada in which the individual, or the individual’s spouse or common-law partner, parent, child or grandchild, was actively engaged on a regular and continuous basis. It will also include shares of the capital stock of family fishing corporations and interests in family fishing partnerships, of the individual. The definitions of the terms "qualified fishing property", "share of the capital stock of a family fishing corporation" and "interest in a family fishing partnership" and related terms will generally be similar to existing definitions provided for the terms "qualified farm property", "share of the capital stock of family farm corporation" and "interest in a family farm partnership" and related terms for the purposes of the LCGE.
As a general rule, one half of gains from the disposition of eligible capital property are included in computing an individual’s business income. However, existing provisions in the Income Tax Act allow individuals to report a gain from the disposition of an eligible capital property that is a qualified farm property as a capital gain for the purposes of the determining the individual’s eligibility for the LCGE. In order to provide comparable treatment, Budget 2006 proposes measures that will extend the scope of these provisions to include eligible capital property, such as an interest in a fishing licence, that is qualified fishing property.
Reserve Allowed on Certain Dispositions of Fishing Assets
In computing a taxpayer’s capital gain for a taxation year from the disposition of a capital property, a taxpayer is permitted to claim a reasonable reserve in respect of amounts of proceeds that have not been received by the taxpayer. The maximum reserve period is generally limited to five years. However, special rules apply in respect of transfers by an individual of farm property to an individual’s child or grandchild to increase the maximum reserve period to 10 years. Budget 2006 proposes measures that will extend the scope of this measure to include fishing property as defined for the purposes of the intergenerational rollover.
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