Calculate taxable capital gain if I sold public company shares - $500,000 on Feb 1, 2024 and $500,000 on Jul 2, 2024 factoring proposed legislation?
Blue J’s Answer:
Your taxable capital gain for the sale of public company shares in 2024 will be calculated based on the proposed changes to the capital gains inclusion rate. Here is the detailed calculation:
1.????? Sale on February 1, 2024:
·???????? Proceeds of disposition: $500,000
·???????? Since this sale occurs before June 25, 2024, the inclusion rate is 1/2.
·???????? Taxable capital gain: $500,000 * 1/2 = $250,000
2.????? Sale on July 2, 2024:
·???????? Proceeds of disposition: $500,000
·???????? Since this sale occurs after June 24, 2024, the inclusion rate is 2/3.
·???????? Taxable capital gain: $500,000 * 2/3 = $333,333.33
3.????? Total Taxable Capital Gain for 2024:
·???????? Taxable capital gain from February 1, 2024: $250,000
·???????? Taxable capital gain from July 2, 2024: $333,333.33
·???????? Total taxable capital gain: $250,000 + $333,333.33 = $583,333.33
Therefore, your total taxable capital gain for the year 2024, considering the proposed changes in legislation, is $583,333.33.
Sources
[1] ITA s. 38 Taxable capital gain and allowable capital loss
[2] Capital Gains – 2023 (T4037)
[3] Department of Finance Explanatory Notes to Legislative Proposals: Legislative Proposals Relating to the Income Tax Act and the Income Tax Regulations (Capital Gains Inclusion Rate)
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[4] Department of Finance Explanatory Notes to Legislative Proposals: Legislative Proposals Relating to the Income Tax Act and the Income Tax Regulations (Budget 2024 and other proposals)
[5] Department of Finance Explanatory Notes to Legislative Proposals: Explanatory Notes to Legislative Proposals Relating to the Income Tax Act and Regulations
[6] Department of Finance Explanatory Notes to Legislative Proposals: Explanatory Notes to Legislative Proposals Relating to the Income Tax Act and Regulations (Capital Gains Inclusion Rate)
[7] Department of Finance Explanatory Notes to Legislative Proposals: Explanatory Notes to Legislative Proposals Relating to the Income Tax Act and Regulations (Budget 2024 and other proposals)
Additional sources:
John Oakey source analysis:
Concluding comments:
I first asked Blue J to calculate my taxable capital gain if I sold public company shares as follows: $500,000 on February 1, 2024 and $500,000 on July 2, 2024.? Blue J responded with the correct calculation ($500,000) based on the current legislation without factoring in the proposed legislation.?
When I reviewed the sources provided with the original answer, I noticed that there was proposed legislation. The response to my original question provided reference to the Department of Finance explanatory notes related to the capital gains proposed legislation. Blue J also provided additional sources that referenced articles from “taxnotes” discussing the changes to the capital gains. This allowed me to question the completeness of my first answer prompting me to modify the question.?
I modified the question by adding the words “factoring proposed legislation”, and I received the above answer.
Given my position at CPA Canada, I was fully aware of the proposed legislative changes, but I wanted to see how Blue J handled the situation.? I am pleased to see that Blue J answered my initial question correctly (as asked) but provided sources and information related to the proposed legislative changes.
This is a great reminder to always use professional judgement and review the source material to validate accuracy and completeness.?
I also noticed that the calculation did not factor in the $250,000 threshold subject to the 50 per cent inclusion rate post June 24th. I modified the question to indicate that the taxpayer was an individual, but Blue J did not recognize the $250,000 threshold. I had to modify the question further by indicating that the taxpayer was an individual and to take the $250,000 threshold into account to arrive at the correct answer. Total taxable capital gain: $250,000 + $125,000 + $166,667 = $541,667.
This is a reminder that Blue J is an excellent tool to help, but we must always use professional judgement to analyze the answer and ensure accuracy and completeness.
Tax Consultant
3 个月John Oakey, FCPA, FCA, TEP, CC, I think Blue J got the answer right. The taxable capital gain is $583,333.33 applying the proposed legislation. There is no $250,000 threshold to maintain access to a 50% inclusion rate. The taxable capital gain of $583,333.33 is correct. An individual would also be entitled to a capital gains reduction of $41,666.67, resulting in a net income inclusion totaling $541,667, but if all I asked was the taxable capital gain, because I was unaware of the mechanics of the capital gains reduction, $583,333.33 is the correct answer to my question. I am reminded of an old court case where a tax advisor was asked about the tax on capital gains if the client sold a rental property. He was sued because he provided that precise answer. He ignored the recaptured CCA, which was substantial, so the client got sticker shock after selling when he saw his tax return,. Your closing comment is the key - Blue J is a tool, and it must be used by a person with the professional expertise to assess the accuracy and completeness of its response. Tax software did not replace that need, and neither will AI research tools.
Great analysis example by the tool, John Oakey, FCPA, FCA, TEP, CC!! I have not had the good fortune to “play” with Blue J yet, but it is encouraging that it picked this up and when queried for completeness it fixed it. I have tested this with a few tools for certain tax matters like SRED. Not one of them has come up with particularly good answers or analysis when asked. I got one to eventually get there, but it took me longer to refine the queries than it would have to just write the explanation out in the first place. If Blue J provides analysis like this, coupled with professional judgement, it will be a powerful tool!