dave@lsuc.uucp (David Sherman) (09/17/88)
The Tax Reform bill (Bill C-139) finally came into law
on September 13. The tax reform proposals were first
released in June 1987, and were revised a fair bit during
the year that followed. The bill includes the February
1988 budget changes and various other bits and pieces
as well. Most of the tax reform changes took effect on
January 1, 1988.
Capital gains: until the end of 1987, they were half-taxed.
That is, 1/2 of your capital gain was a taxable capital gain
and included in income. For 1988 and 1989, they are 2/3
taxed. Effective 1990, they will be 3/4 taxed. So, from
one point of view, it's good to realize capital gains (i.e.,
trigger them by selling the assets in question) before 1990.
Everybody (individuals, not corporations) gets a $100,000
lifetime capital gains exemption (with an extra $400,000
available for certain farms and small business corporations,
but I won't get into that now). Technically, the exemption
is for $66,667 of capital gains realized in 1988-89, and
$75,000 for 1990 and beyond (with transitional rules to
carry the lifetime balance forward properly). Principal
residences are completely exempt from capital gains and
don't affect this exemption.
Something new for 1988: "cumulative net investment loss".
If you have interest expense which you deduct against your
other income, you can't also get the capital gains exemption
(the $66,667 exemption is reduced to the extent of your
cumulative net investment losses).
There's much more to the capital gains system (deemed
dispositions, reserves, rollovers, loss carryovers,
personal-use property rules...), but those are some
highlights.
David Sherman
Tax Lawyer
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