Page 62-The Canadiain Jewish News, Thursday, December 21, 1989
' 5» ■.
Capital-gains excmptJon reduced
Investment in common stock, especially in more established or blue-chip companies, often yields dividend income. This'is taxed at a more favorable rate than interest income ' The real benefit to holding : common stock, however, is the potential that your stock will appreciate in value. When you sell an investment at a price greater than its cost, the result is- a capital gain. When you seir an invest-' ment for less than what you paid for it, the result is a capital loss. Thisapplies to
all investments, not just 'common stock.!
Even after Tax Reform, investors continue to receive certain tax advan-
tages with profits realized from capital gains, although these advantages have been reduced; It is important that you become' familiar with
the new rules.
First, the personal capital-gains exemption for most assets has been reduced from a lifetime maximum of $500,000 to $100,000. A maximum of $500,000 still-applied in the case of farm property and the disposition of shares of small business corporations.
Second, the proportion of capital gains subject to tax will increase.from 50 per cent to 66% per cent in 1989 and to 75 per cent in 1990. Therefore, if an individual has exhausted his
or her captial-gains exemp-' tionof$100,000by 1990, 75 per cent of the cajjital . ,gains will be taxed at his or her marginal {ax rate.
Prior to 1988, capital gains qualifying for tax ex-' emption included gains net of any capital loss. Tax Reform has added a new wrinkle in that your ability to claim a capitalrgairis ek-emption now js inhibited by your cumulative net investment loss (GNIL). ■ CNIL is a kind of account which holds the total amount of investinent expenses claimed each year
Sonny Goldstein, CLU, CH.F.C.
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and in al} preceding years since 1987 that exceeds the total of your investment income for that same period. Investment expenses include: interesf and carrying charges on portfolio investments, rental properties and limited partnerships; shares of limited partnership loss, and 50 per cent of certain resource deductions for non-active participants and losses from renting or leasing real property.
By claiming these investment expenses which create or increase your CNIL, you reduce your ability to claim a capital-gains exemption in that year. The calculation is cumulative from the start of 1988 so that income of one year will offsetlfieex-
penses of another year.
It is important to realize that CNIL does not affect your current deduction for these expenses j nor does it reduce your available life: time exemption. What it does affect is the rate at which your exemption can be "Utilized, which is reduced.
The changes to the taxation of dividends and capital gains have removed the previbusly existing preference for capital gains, except where these gains can be sheltered through the capital-gains exemption or the application of net capital-loss carryovers.
Arnold Polan, a chartered accountant, is a vice-president and director of ScotiaMcLeod Inc.
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