Path: utzoo!utgpu!jarvis.csri.toronto.edu!daemon Newsgroups: can.general From: thomson@hub.toronto.edu (Brian Thomson) Subject: Re: The Taxman Cometh for NSERC Award Recipients Message-ID: <8909150011.AA24476@beaches.hub.toronto.edu> Sender: Organization: University of Toronto References: <1989Sep8.084613.10300@lsuc.on.ca> <706@philmtl.philips.ca> Distribution: can Date: 15 Sep 89 00:12:37 GMT In article <706@philmtl.philips.ca> keghamr@philmtl.philips.ca writes: >ex. property bought at 100,000, depreciate it down to $ 0.0 (over >many years) if your tax bracket was 50% you recovered $50,000. >later on you sell for what you paid 100,000 , now revcan recognizes >a cap-gain of 100,000 since it was depreciated to 0.0 but the taxes >paid on 100,000 x 66% = 66,000 x 50 % = 33,000. you wind up with a >net gain of 17,000. Wrong. What you describe is an example of what Revenue Canada calls 'recapture', basically regaining depreciated value. Recapture must be taken directly into income, and cannot be treated as a capital gain. In the example given, it might still make sense to do this, since you would be delaying collection of that tax for many years, and eventually paying it with inflated dollars, if: 1) you can cough up the tax when RevCan wants it. It may be that you will have to pay by installments on account of your $100,000 non-withheld income. 2) you are not pushed into too high a marginal tax rate. This is not easily determined, because 'many years' from now the continual process of incremental blood sucking - er, I mean tax reform - may make your final marginal rate 80% rather than the 50% you expect given today's rules. There is a certain element of risk involved. -- Brian Thomson, CSRI Univ. of Toronto utcsri!uthub!thomson, thomson@hub.toronto.edu