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                 ,9DEX
    
                               ,BRL PAGE
,3T5TS """""""""""""""""""""""""""""" #D
,APPLIC,N """"""""""""""""""""""""""" #E
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  ,ELIGI# ,CAPITAL ,PROP]TY (A
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,S*$ULE ;,A """""""""""""""""""""""" #ED
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                 ,9DEX
,S*$ULE ;,B """""""""""""""""""""""" #FJ
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  ,R1SONS =! ,REVI.N """"""""""""""" #GA
  ,LEGISLATIVE & ,O!R ,*ANGES """""" #GB



















                                     ;II
,CANADA ,CU/OMS                       #A
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  #BJ7#A77B7 PROVIDES =A DEDUC;N 7!
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  -PUT+ ! TAXPAY]'S 9COME F ! BUSI;S = T
  YE>1 ( UP 6#G@3P ( S* POSITIVE BAL.E4
  ,! POOL IS !N DECR1S$ 0! AM.T S
  DEDUCT$4
#AB4 ,IF1 ON ! O!R H&1 "! IS A NEGATIVE
  BAL.E 9 ! POOL AT ! 5D (! YE>1
  SUBSEC;N #AD7#A7 USU,Y REQUIRES T AN
  AM.T 2 9CLUD$ 9 -PUT+ ! TAXPAY]'S
  9COME =! YE>4 ,! RULES = ? .9COME
  .9CLU.N "U SUBSEC;N #AD7#A7 V>Y = TWO
  DI6]5T CATEGORIES ( TAXPAY]S1 Z 4CUSS$
  2L4

                                     #AF
      ,TAXPAY]S 9 ! ,F/ ,CATEGORY    F#C
    
#AC4 ,AN 9DIVIDUAL RESID5T 9 ,CANADA
  "?\T ! TAX,N YE> 7I4E41 ! YE> AT ! 5D
  ( : ! NEGATIVE BAL.E 9 ! POOL O3URS7
  IS 9CLUD$ 9 ! F/ CATEGORY ( TAXPAY]S
  IF ! BUSI;S = : ! NEGATIVE BAL.E 9 !
  POOL O3URS IS
  7A7 ! 9DIVIDUAL'S BUSI;S1 OR
  7B7 ! BUSI;S (A "PN]%IP : IS A
    ,CANADIAN "PN]%IP "?\T ! YE> 7I4E41
    ! "PN]'S FISCAL P]IOD AT ! 5D ( : !
    NEGATIVE BAL.E 9 ! POOL O3URS7 &!
    9DIVIDUAL IS A MEMB] ( T ,CANADIAN
    "PN]%IP AT "S "T 9 T YE> 7S*
    MEMB]%IP C 2 EI DIRECT OR 9DIRECT "?
--------------------------------------#D
    ANO!R ,CANADIAN "PN]%IP OR S]IES (
    ,CANADIAN "PN]%IPS74
  ,= PURPOSES (! ABV 4CUS.N1 AN
  89DIVIDUAL0 Z DEF9$ 9 SUBSEC;N
  #BDH7#A7 9CLUDES A TRU/4 ,A 8,CANADIAN
  "PN]%IP0 IS DEF9$ 0SEC;N #AJB Z A
  "PN]%IP ALL (! MEMB]S ( : >E RESID5T 9
  ,CANADA AT ALL RELEVANT "TS 7:1    #AG
             ,,IT-#ABC;,R#F          A#D
  = PURPOSES ( SUBSEC;N #AD7#A71 WD 2
  "?\T ! "PN]%IP'S 5TIRE TAX,N YE> = : !
  NEGATIVE BAL.E 9 ! POOL O3URS74 ,X %D
  AL 2 NOT$ T AN 9DIVIDUAL IS N EXCLUD$
  F ! F/ CATEGORY ( TAXPAY]S IF ANO!R
  MEMB] ( ANY "PN]%IP M5;N$ 9 7B7 ABV IS
  A CORPOR,N1 A CORPORATE "PN]%IP OR A
  TI]$ CORPORATE "PN]%IP Z DESCRIB$ 9
  P>AGRAPH #BA7C7 2L4

  ,0VIRTUE ( SUBSEC;N #AD7#H71 AN
  9DIVIDUAL T 2CAME OR C1S$ 6BE RESID5T
  9 ,CANADA DUR+ A "PICUL> TAX,N YE> IS
  DEEM$ 6BE RESID5T 9 ,CANADA ."?\T T
  YE>1 = PURPOSES ( 2+ 9CLUD$ 9 ! F/
  CATEGORY ( TAXPAY]S1 Z L;G Z !
  9DIVIDUAL 0 RESID5T 9 ,CANADA "?\T !
  PREVI\S OR ! SUBSEQU5T YE>4
#AD4 ,IF ! TAXPAY] IS 9 ! F/ CATEGORY1
  "! IS AN 9COME 9CLU.N "U SUBP>AGRAPH
  #AD7#A77A77;IV7 7! ..SUBP>AGRAPH
  #AD7#A77A77;IV7 RECAPTURE 9COME
  .9CLU.N71 : IS EQUAL 6! LESS] ( TWO
  AM.TS3                             #AH
             ,,IT-#ABC;,R#F          B#D
  7A7 ! NEGATIVE BAL.E 9 ! POOL AT ! 5D
    (! YE>2 &
  7B7 ! ..TOTAL NET RECAPTURA# .AM.T 7Z
    REF]R$ 6IN ? BULLET971 : IS
    CALCULAT$ Z
  
    ;,A PLUS ;,B PLUS ,B4#A M9US ;,C 7?
    NET AM.T _C 2 LESS ?AN Z]O74
  
    ,! V>IA#S 9 ? =MULA >E Z FOLL[S3
    ;,A IS ! SUM ( ALL P>AGRAPH
      #BJ7#A77B7 DEDUC;NS = PRIOR YE>S
      "U ! .NEW SY/EM4
    ;,B IS ! NET ( ALL P>AGRAPH
      #BJ7#A77B7 DEDUC;NS LESS 9COME
      9CLU.NS = PRIOR YE>S "U ! .OLD
      SY/EM 7NOTE T "U ! OLD SY/EM NO
      4T9C;N 0 MADE Z 6:E!R AN 9COME
      9CLU.N REPRES5T$ A RECAPTURE (
      P>AGRAPH #BJ7#A77B7 DEDUC;NS OR
      O!RWISE1 & AL NOTE T ? NET AM.T =
      ;,B _C 2 LESS ?AN Z]O74
    ,B4#A IS ! TOTAL ( ALL AM.TS 0: !
      POOL IS 6BE REDUC$ 2C (        #AI
             ,,IT-#ABC;,R#F          C#D
      SUBSEC;N #HJ7#G7 7SEE P>AGRAPH #AJ
      ABV74
    ;,C IS ! SUM ( ALL SUBP>AGRAPH
      #AD7#A77A77;IV7 RECAPTURE 9COME
      9CLU.NS = PRIOR YE>S "U ! .NEW
      SY/EM4
    ,! AM.T (! SUBP>AGRAPH
    #AD7#A77A77;IV7 RECAPTURE 9COME
    9CLU.N =! YE>1 Z DET]M9$ ABV
  7C7 IS !N A4$ BACK 6! POOL 7! R1SON =
    ? IS EXPLA9$ 9 P>AGRAPHS #AF & #AG
    2L72 &
  7D7 W 2 9CLUD$ 9 AM.T ;,C 9 ! =MULA
    ABV :5 DET]M9+ ! TOTAL NET
    RECAPTURA# AM.T 9 A SUBSEQU5T YE>4
#AE4 ,IF ! NEGATIVE BAL.E 9 ! POOL AT !
  5D (! YE> 7I4E41 ! AM.T 9 P>AGRAPH
  #AD7A7 ABV7 IS GRT] ?AN ! TOTAL NET
  RECAPTURA# AM.T 7Z DET]M9$ 0! =MULA
  DESCRIB$ 9 P>AGRAPH #AD7B7 ABV71
  --! TOTAL NET RECAPTURA# AM.T 7IF ANY7
    IS FULLY RECAPTUR$ 0M1NS (!
  
                                     #BJ
             ,,IT-#ABC;,R#F          D#D
    SUBP>AGRAPH #AD7#A77A77;IV7
    RECAPTURE 9COME 9CLU.N =! YE>2 &
  --SUBP>AGRAPH #AD7#A77A77;V7 !N
    APPLIES4

  ,! RULES 9 SUBP>AGRAPH #AD7#A77A77;V7
  DI6] = FISCAL P]IODS 5D+ 2F ,FEBRU>Y
  #BC1 #AIID 7SEE P>AGRAPH #AF 2L7 &
  FISCAL P]IODS 5D+ AF ,FEBRU>Y #BB1
  #AIID 7SEE P>AGRAPH #AG 2L74
#AF4 ,G5],Y1 ..= EA* FISCAL P]IOD 5D+ 2F
  ,FEBRU>Y #BC1 .#AIID1 9 A4I;N 6A
  SUBP>AGRAPH #AD7#A77A77;IV7 RECAPTURE
  9COME 9CLU.N1 "! IS A DEEM$ TAXA#
  CAPITAL GA9 "U SUBP>AGRAPH
  #AD7#A77A77;V74 ,A ..SUBP>AGRAPH
  #AD7#A77A77;V7 DEEM$ TAXA# CAPITAL
  .GA9 IS CALCULAT$ Z ! EXCESS 7IF ANY7
  (
  7A7 ! NEGATIVE BAL.E 9 ! POOL AT ! 5D
    (! YE> 7I4E41 ! AM.T 9 P>AGRAPH
    #AD7A7 ABV71
  OV]
                                     #BA
             ,,IT-#ABC;,R#F          E#D
  7B7 ! SUM (
    --! SUBP>AGRAPH #AD7#A77A77;IV7
      RECAPTURE 9COME 9CLU.N =! YE> 7:1
      Z J M5;N$1 IS ! FULL RECAPTURE (!
      TOTAL NET RECAPTURA# AM.T71 &
    --"O-HALF ( V>IA# ;,B 9 ! =MULA 9
      P>AGRAPH #AD7B7 ABV4
  ,A SUBP>AGRAPH #AD7#A77A77;V7 DEEM$
  TAXA# CAPITAL GA9 CALCULAT$ "U ! ABV
  =MULA _C 2 LESS ?AN Z]O4 ,:5 A
  SUBP>AGRAPH #AD7#A77A77;V7 DEEM$ TAXA#
  CAPITAL GA9 O3URS1 ! FOLL[+ RULES
  APPLY3
  --,! SUBP>AGRAPH #AD7#A77A77;V7 DEEM$
    TAXA# CAPITAL GA9 =! YE> 5T]S 96!
    CALCUL,N (! TAXPAY]'S 9COME =! YE>
    "U P>AGRAPH #C7B7 & QUALIFIES1
    SUBJECT 6! LIMIT,NS 9 SEC;N #AAJ.F1
    =A CAPITAL GA9S DEDUC;N 0! TAXPAY]4
  --,IN A4I;N 6! AM.T (! SUBP>AGRAPH
    #AD7#A77A77;IV7 RECAPTURE 9COME
    9CLU.N =! YE> 2+ A4$ BACK 6! POOL
    7SEE P>AGRAPH #AD7C7 ABV71 AL A4$
    BACK 6! POOL >E                  #BB
             ,,IT-#ABC;,R#F          F#D
    --! AM.T (! SUBP>AGRAPH
      #AD7#A77A77;V7 DEEM$ TAXA# CAPITAL
      GA9 =! YE>1 &
    --"O-HALF ( V>IA# ;,B 9 ! =MULA 9
      P>AGRAPH #AD7B7 ABV4
  ,ALL ( ^! ADD-BACKS 6! POOL BR+ ! POOL
  BAL.E BACK 6NIL4 ,9 O!R ^WS1 ^! ADD-
  BACKS 5SURE T NO POR;N (! NEGATIVE
  BAL.E AT ! 5D (! YE> C 2 SUBJECT
  6TAX,N 9 A SUBSEQU5T YE>4 ,? PR9CIPLE
  IS ILLU/RAT$ 9 ! EXAMPLE 9 ,S*$ULE ;,B
  7SEE ! #AIIJ TAX,N YE>74
--------------------------------------#E
  ,NOTE T ! SUBP>AGRAPH #AD7#A77A77;V7
  DEEM$ TAXA# CAPITAL GA9 =! YE> %D N 2
  9CLUD$ 9 AM.T ;,C 9 ! =MULA 9 P>AGRAPH
  #AD7B7 ABV :5 DET]M9+ ! TOTAL NET
  RECAPTURA# AM.T 9 A SUBSEQU5T YE>4
#AG4 ,G5],Y1 ..= EA* FISCAL P]IOD 5D+ AF
  ,FEBRU>Y #BB1 .#AIID1 9 A4I;N 6A
  SUBP>AGRAPH #AD7#A77A77;IV7 RECAPTURE
  9COME 9CLU.N1 "! IS AN 9COME 9CLU.N "U
  SUBP>AGRAPH #AD7#A77A77;V74 ,A
  ..SUBP>AGRAPH #AD7#A77A77;V7       #BC
             ,,IT-#ABC;,R#F          A#E
  9COME .9CLU.N IS DET]M9$ 0! FOLL[+
  =MULA3 ;,A M9US ;,B M9US ;,C M9US ;,D

  ,A SUBP>AGRAPH #AD7#A77A77V7 9COME
  9CLU.N CALCULAT$ "U ! ABV =MULA _C 2
  LESS ?AN Z]O4 ,! V>IA#S 9 ! =MULA >E Z
  FOLL[S3
    ;,A IS ! NEGATIVE BAL.E 9 ! POOL AT
      ! 5D (! YE> 7I4E41 ! AM.T 9
      P>AGRAPH #AD7A7 ABV74
    ;,B IS ! TOTAL NET RECAPTURA# AM.T Z
      (! 5D (! YE> Z DET]M9$ 9 P>AGRAPH
      #AD7B7 ABV4
    ;,C IS "O-HALF ( V>IA# ;,B 9 ! =MULA
      9 P>AGRAPH #AD7B7 ABV4
    ;,D IS ! AM.T T ! TAXPAY] CLAIMS \
      (! TAXPAY]'S .EXEMPT .GA9S .BAL.E
      7Z DEF9$ 9 SUBSEC;N #AD7#E77 9
      RESPECT (! BUSI;S =! YE>4
  ,) REG>D 6V>IA# ;,D ABV1 ! TAXPAY] W H
  CR1T$ AN EXEMPT GA9S BAL.E IF !
  TAXPAY] 0 AN 9DIVIDUAL 7O!R ?AN A
  TRU/7 OR A P]SONAL TRU/ &! TAXPAY]
  MADE AN ELEC;N 6H P>AGRAPH         #BD
             ,,IT-#ABC;,R#F          B#E
  #AAJ.F7#AI77B7 APPLY 9 RESPECT (A
  BUSI;S C>RI$ ON 0! TAXPAY] ON ,FEBRU>Y
  #BB1 #AIID 7O!RWISE ?AN Z A MEMB] (A
  "PN]%IP74 ,SUBSEC;N #AAJ.F7#AI7 0 A4$
  6! ,ACT 6ALL[ TAXPAY]S 6RECOGNIZE
  CAPITAL GA9S A3RU$ 6,FEBRU>Y #BB1
  #AIID1 2C (! ELIM9,N (! 4#AJJ1JJJ
  CAPITAL GA9S EXEMP;N = 4POSI;NS (
  PROP]TY AF T DATE4 ,P>AGRAPH
  #AAJ.F7#AI77B7 PROVIDES =! CRE,N (A
  DEEM$ TAXA# CAPITAL GA9 EQUAL 6! AM.T
  (! SUBP>AGRAPH #AD7#A77A77V7 DEEM$
  TAXA# CAPITAL GA9 7IF ANY7 T WD H
  RESULT$ "U ! RULES = FISCAL P]IODS 5D+
  2F ,FEBRU>Y #BC1 #AIID 7Z 4CUSS$ 9
  P>AGRAPH #AF ABV7 IF
  --! TAXPAY]'S TAX,N YE> _H 5D$ ON
    ,FEBRU>Y #BB1 #AIID1 &
  --! TAXPAY] _H 4POS$ ( .ALL ! ,,EC
    PROP]TY (! BUSI;S = AN AM.T (
    PROCE$S DESIGNAT$ 0! TAXPAY]4
  
  ,! TAXPAY] W !N H 9CLUD$ ! P>AGRAPH
  #AAJ.F7#AI77B7 DEEM$ TAXA#         #BE
             ,,IT-#ABC;,R#F          C#E
  CAPITAL GA9 9 9COME =! TAX,N YE> T
  9CLUD$ ,FEBRU>Y #BB1 #AIID & X W H
  QUALIFI$ =A CAPITAL GA9S DEDUC;N
  7SUBJECT 6! LIMIT,NS 9 SEC;N #AAJ.F 9
  =CE Z ( ,FEBRU>Y #BB1 #AIID74 ,NOTE T
  ? IS S REG>D.S ( :E!R OR N ! TAXPAY]'S
  P>AGRAPH #AAJ.F7#AI77B7 DESIGNAT$
  PROCE$S 7 EQUAL 6! FAIR M>KET VALUE (
  ALL ! TAXPAY]'S ,,EC PROP]TY =! BUSI;S
  Z ( ,FEBRU>Y #BB1 #AIID 7=! SAKE (
  BREV;Y1 ! LATT] AM.T IS "HAF REF]R$
  6SIMPLY Z ! 8FAIR M>KET VALUE074 ,NOTE
  AL T S9CE ! DEEM$ TAXA# CAPITAL GA9 W
  H O3URR$ "U P>AGRAPH #AAJ.F7#AI77B7 R
  ?AN "U SUBP>AGRAPH #AD7#A77A77;V71 !
  TAXPAY]'S P>AGRAPH #AAJ.F7#AI77B7
  DESIGNAT$ PROCE$S W N H RESULT$ 9 AN
  ,,EC AM.T T REDUC$ ! ,,EC POOL AT T
  "T4 ,IF ! TAXPAY]'S P>AGRAPH
  #AAJ.F7#AI77B7 DESIGNAT$ PROCE$S 7
  EQUAL 6OR LESS ?AN ! FAIR M>KET VALUE1
  ! TAXPAY]'S EXEMPT GA9S BAL.E W H />T$
  \ AT AN AM.T EQUAL 6! TAXPAY]'S DEEM$
  TAXA# CAPITAL GA94 7,IF !          #BF
             ,,IT-#ABC;,R#F          D#E
  TAXPAY]'S P>AGRAPH #AAJ.F7#AI77B7
  DESIGNAT$ PROCE$S 7 M ?AN ! FAIR M>KET
  VALUE1 LESS FAV\RA# RESULTS W H
  O3URR$4 ,= FUR!R "PICUL>S1 SEE
  P>AGRAPH #AAJ.F7#AI77B7 & AL SUBSEC;N
  #AD7#I747

  ,! TAXPAY] MAY CLAIM ALL OR A POR;N (!
  EXEMPT GA9S BAL.E Z V>IA# ;,D 9 ! ABV
  =MULA 9 ORD] 6REDUCE A SUBP>AGRAPH
  #AD7#A77A77;V7 9COME 9CLU.N RESULT+1 =
  EXAMPLE1 F AN ,,EC AM.T P]TA9+ 6AN
  ACTUAL 4POSI;N ( AN ,,EC PROP]TY = : A
  P>AGRAPH #AAJ.F7#AI77B7 ELEC;N _H
  PREVI\SLY BE5 MADE4

  ,! TAXPAY]'S EXEMPT GA9S BAL.E =A
  "PICUL> TAX,N YE> IS REDUC$ 0ANY AM.T
  CLAIM$ Z V>IA# ;,D ABV =A PREVI\S YE>4

  ,:5 A SUBP>AGRAPH #AD7#A77A77;V7 9COME
  9CLU.N O3URS1 ! FOLL[+ RULES APPLY3
  --,! SUBP>AGRAPH #AD7#A77A77V7 9COME
    9CLU.N =! YE> IS 9CLUD$ 9 !      #BG
             ,,IT-#ABC;,R#F          E#E
    TAXPAY]'S 9COME F ! BUSI;S =! YE>4
    ,H["E1 IF "S OR ALL (! SUBP>AGRAPH
    #AD7#A77A77;V7 9COME 9CLU.N C
    R1SONABLY 2 ATTRIBUT$ 6A 4POSI;N (
    8QUALIFI$ F>M PROP]TY0 Z DEF9$ 9
    SUBSEC;N #AAJ.F7#A71 "S OR ALL ( T
    9COME 9CLU.N MAY QUALIFY =A CAPITAL
    GA9S DEDUC;N 0! TAXPAY]4 7,AL?1 Z
    M5;N$ E>LI]1 ! 4#AJJ1JJJ CAPITAL
    GA9S EXEMP;N 0 ELIM9AT$ = 4POSI;NS (
    PROP]TY O3URR+ AF ,FEBRU>Y #BB1
    #AIID1 "! 0 NO S* ELIM9,N (!
    4#EJJ1JJJ CAPITAL GA9S EXEMP;N =
    4POSI;NS ( QUALIFI$ F>M PROP]TY47 ,!
    RULES 9 SEC;N #AD %D 2 3SULT$ 9
    3JUNC;N ) ^? 9 SEC;N #AAJ.F 6DET]M9E
    ! AM.T ( CAPITAL GA9S DEDUC;N T MAY
    2 CLAIM$ =! SUBP>AGRAPH
    #AD7#A77A77;V7 9COME 9CLU.N4
  --,IN A4I;N 6! AM.T (! SUBP>AGRAPH
    #AD7#A77A77;IV7 RECAPTURE 9COME
    9CLU.N =! YE> 2+ A4$ BACK 6! POOL
    7SEE P>AGRAPH #AD7C7 ABV71 AL A4$
    BACK 6! POOL >E                  #BH
             ,,IT-#ABC;,R#F          F#E
    --! AM.T (! SUBP>AGRAPH
      #AD7#A77A77;V7 9COME 9CLU.N =!
      YE>1
    --! AM.T ( V>IA# ;,D =! YE> 9 ! ABV
      =MULA1 &
    --"O-HALF ( V>IA# ;,B 9 ! =MULA 9
      P>AGRAPH #AD7B7 ABV4
  ,ALL ( ^! 8ADD-BACKS0 6! POOL BR+ !
  POOL BAL.E BACK 6NIL4 ,9 O!R ^WS1 ^!
  ADD-BACKS 5SURE T NO POR;N (! NEGATIVE
  BAL.E AT ! 5D (! YE> C 2 SUBJECT
  6TAX,N 9 A SUBSEQU5T YE>4

  ,NOTE T ! SUBP>AGRAPH #AD7#A77A77;V7
  9COME 9CLU.N =! YE> %D N 2 9CLUD$ 9
  AM.T ;,C 9 ! =MULA
--------------------------------------#F
  9 P>AGRAPH #AD7B7 ABV :5 DET]M9+ !
  TOTAL NET RECAPTURA# AM.T 9 A
  SUBSEQU5T YE>4
#AH4 ,AL? SUBP>AGRAPH #AD7#A77A77;V7 C
  APPLY 9 ! MANN] DESCRIB$ 9 P>AGRAPHS
  #AE 6#AG ABV 6A TRU/ RESID5T 9 ,CANADA
  "?\T ! YE> 7I4E41 2C S* A TRU/ C   #BI
             ,,IT-#ABC;,R#F          A#F
  2 9CLUD$ 9 ! F/ CATEGORY ( TAXPAY]S-
  SEE P>AGRAPH #AC ABV71 A CAPITAL GA9S
  DEDUC;N IS G5],Y N AVAILA# 6A TRU/ "U
  SEC;N #AAJ.F4 ,H["E1 X MAY 2 POSSI# 9
  "S CASES =A B5EFICI>Y 7(! TRU/7 :O IS
  AN 9DIVIDUAL RESID5T 9 ,CANADA "?\T !
  YE> 7SEE P>AGRAPH #AC ABV7 6CLAIM A
  CAPITAL GA9S DEDUC;N 9 RESPECT (!
  TRU/'S SUBP>AGRAPH #AD7#A77A77;V7 AM.T
  0M1NS (! FL[-"? PROVI.NS 9 SUBSEC;NS
  #AJD7#BA7 & 7#BA.B7 9 3JUNC;N ) SEC;N
  #AAJ.F1 SUBJECT 6! REQUIRE;TS 3TA9$ 9
  ALL ( ^! PROVI.NS4 ,SUBSEC;NS
  #AJD7#BA7 & 7#BA.B7 >E 4CUSS$ 9 !
  CURR5T V].N ( ,,IT-#CHA4
#AI4 ,SUBP>AGRAPH #AD7#A77A77;V7 C APPLY
  9 ! MANN] DESCRIB$ 9 P>AGRAPHS #AE
  6#AG ABV ": ! BUSI;S IS C>RI$ ON 0A
  ,CANADIAN "PN]%IP 7I4E41 IF ! F/
  CATEGORY ( TAXPAY]S APPLIES--SEE
  P>AGRAPH #AC7B7 ABV74 ,0VIRTUE (
  SUBSEC;N #IF7#A71 ! SUBP>AGRAPH
  #AD7#A77A77;V7 AM.T IS CALCULAT$ AT !
  "PN]%IP LEVEL B FL[S "? 6!         #CJ
             ,,IT-#ABC;,R#F          B#F
  "PN]%IP'S MEMB]S 7SEE ! CURR5T V].N (
  ,,IT-#ACH74 ,X MAY 2 POSSI# 9 "S CASES
  =A MEMB] (! ,CANADIAN "PN]%IP :O IS AN
  9DIVIDUAL RESID5T 9 ,CANADA "?\T ! YE>
  7SEE P>AGRAPH #AC ABV7 6CLAIM A SEC;N
  #AAJ.F CAPITAL GA9S DEDUC;N ) RESPECT
  6HIS OR H] %>E (! SUBP>AGRAPH
  #AD7#A77A77;V7 AM.T1 SUBJECT 6!
  REQUIRE;TS 3TA9$ 9 ALL (! ABV-M5;N$
  PROVI.NS4 ,9 ! CASE (A MEMB] (!
  ,CANADIAN "PN]%IP : IS A CORPOR,N1 XS
  %>E (! SUBP>AGRAPH #AD7#A77A77;V7 AM.T
  W N QUALIFY =A CAPITAL GA9S DEDUC;N4
  ,9 ! CASE (A MEMB] (! ,CANADIAN
  "PN]%IP : IS A TRU/1 SEE P>AGRAPH #AH
  ABV4
#BJ4 ,IF
  --AN 9DIVIDUAL IS A MEMB] (A "PN]%IP1
  --A SUBSEC;N #AAJ.F7#AI7 ELEC;N HAS
    BE5 MADE 9 RESPECT (! 9DIVIDUAL'S
    9T]E/ 9 ! "PN]%IP1 &
  --! "PN]%IP HAS A SUBP>AGRAPH
    #AD7#A77A77;V7 AM.T1 A %>E ( : FL[S
                                     #CA
             ,,IT-#ABC;,R#F          C#F
    "? ! "PN]%IP 6! 9DIVIDUAL 7SEE
    P>AGRAPH #AI ABV71
  ! 9DIVIDUAL'S %>E (! SUBP>AGRAPH
  #AD7#A77A77;V7 AM.T MAY 2 A# 6BE
  REDUC$ 0M1NS ( SUBSEC;N #CI.A7#E74 ,=
  FUR!R "PICUL>S1 SEE SUBSEC;N #CI.A7#E7
  &! CALCUL,N ( AN 9DIVIDUAL'S 8EXEMPT
  CAPITAL GA9S BAL.E0 Z DET]M9$ "U
  SUBSEC;N #CI.A7#A74

    ,TAXPAY]S 9 ! ,SECOND ,CATEGORY
    
#BA4 ,! SECOND CATEGORY ( TAXPAY]S
  9CLUDES ! FOLL[+3
  7A7 ANY TAXPAY] 7E4G41 AN 9DIVIDUAL1
    9CLUD+ A TRU/1 OR A CORPOR,N7 N
    RESID5T 9 ,CANADA "?\T ! TAX,N YE>
    7SEE P>AGRAPH #AC ABV72
  7B7 ANY TAXPAY] 7E4G41 AN 9DIVIDUAL1
    9CLUD+ A TRU/1 OR A CORPOR,N71 IF !
    BUSI;S = : ! NEGATIVE BAL.E 9 ! POOL
    O3URS IS T (A "PN]%IP : IS N A
    ,CANADIAN "PN]%IP 7Z DESCRIB$ 9
    P>AGRAPH #AC ABV7 "?\T ! YE>     #CB
             ,,IT-#ABC;,R#F          D#F
    7I4E41 ! "PN]'S FISCAL P]IOD AT ! 5D
    ( : ! NEGATIVE BAL.E 9 ! POOL O3URS7
    &! TAXPAY] IS A MEMB] ( T "PN]%IP 9
    T YE> EI DIRECTLY OR 9DIRECTLY "?
    ANO!R "PN]%IP OR S]IES ( "PN]%IPS2 &
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             ,,IT-#ABC;,R#F          E#F
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  #AD7#A77B74 ,! 9COME 9CLU.N IS
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  7B7 "O-HALF (! NET AM.T ( ALL P>AGRAPH
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  ,! AM.T (! P>AGRAPH #AD7#A77B7 9COME
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  7I4E41 "O-HALF (! NET AM.T ( ALL
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  ADD-BACKS 5SURE T NO POR;N (! NEGATIVE
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  6TAX,N 9 A SUBSEQU5T YE>4

                                     #CD
       ,NON-,>M'S ,L5G? ,TRANSF]S     #G
    
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  9DIVIDUAL1 9CLUD+ A TRU/7 OR A "PN]%IP
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                                     #CE
             ,,IT-#ABC;,R#F          A#G
  7A7 ! AM.T DET]M9$ 0! TRANSF]OR Z !
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  4#E1 REDUC+ ! POOL BAL.E 64#GJ4 ,9 !
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             ,,IT-#ABC;,R#F          B#G
  7ASSUME T "! >E NO CO/S =! 4POSI;N71 :
  CAUSES A NEGATIVE BAL.E ( 4#HJ 9 8
  ,,EC POOL AT ! 5D ( T YE>4 ,"U
  SUBP>AGRAPH #AD7#A77A77;IV71 4#E ( T
  NEGATIVE BAL.E IS 9CLUD$ 9 ,MR4 ;,A'S
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  REMA9+ 4#GE IS 9CLUD$ 9 ,MR4 ;,A'S
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  P>AGRAPHS #AF & #AG ABV74 ,"U SUBSEC;N
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  ,,EC PROP]TY ACQUIR$ = 8 BUSI;S IS
  DET]M9$ 6BE F\R-?IRDS ( 8 "F'S 4#AEJ
  ,,EC AM.T M9US F\R-?IRDS ( 8 "F'S 4#GE
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  EXP5DITURE IS "!=E 4#AJJ 9/1D (! 4#BJJ
  HE ACTU,Y PD1 & 4#GE R ?AN 4#AEJ IS
  A4$ 6! POOL = 8 BUSI;S4

                                     #CG
             ,,IT-#ABC;,R#F          C#G
  ,F9,Y1 X %D 2 NOT$ T ! ABV REDUC;N 6!
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  6! EXT5T T ! TRANSF]EE RCVS PROCE$S1 9
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  EXCESS (! TRANSF]EE'S ,,EC EXP5DITURE
  7Z 9ITI,Y DET]M9$ "U ! SUBSEC;N
  #AD7#C7 =MULA GIV5 ABV74 ,H["E1 IF !
  SUBSEQU5T 4POSI;N IS 6A P]SON OR
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  --SEE 7B7 9 ! SUBSEC;N #AD7#C7 =MULA
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  3TA9S A RULE T P]TA9S 6! REDUC;N1 "U
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  L5G? TRANSF]OR MADE AN ELEC;N =!   #CH
             ,,IT-#ABC;,R#F          D#G
  ,,EC PROP]TY "U P>AGRAPH
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  2F X 0 ACQUIR$ 0! TRANSF]EE1 !
  TRANSF]OR'S P>AGRAPH #AAJ.F7#AI77B7
  DEEM$ TAXA# CAPITAL GA9 IS DEEM$ 6H
  BE5 CLAIM$ Z A SEC;N #AAJ.F CAPITAL
  GA9S DEDUC;N 0! TRANSF]OR OR 0ANY O!R
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  ^WS1 ! TRANSF]EE'S ,,EC EXP5DITURE =!
  ,,EC PROP]TY WD 2 REDUC$ 0F\R-?IRDS (!
  TRANSF]OR'S P>AGRAPH #AAJ.F7#AI77B7
  DEEM$ TAXA# CAPITAL GA9 9 RESPECT (!
  PROP]TY4

         ,REPLACE;T ,PROP]TIES
    
#BE4 ,": A TAXPAY] 4POSES ( AN ,,EC
  PROP]TY 7! =M] PROP]TY7 9 A "PICUL>
  TAX,N YE> 7! F/ YE>7 & 9 ! IMMLY
  FOLL[+ YE> 7! SECOND YE>7 ACQUIRES
  ANO!R ,,EC PROP]TY 6REPLACE ! =M]
  PROP]TY1 SUBSEC;N #AD7#F7 C 2      #CI
             ,,IT-#ABC;,R#F          E#G
  US$ 6PREV5T ! REDUC;N (A POSITIVE
  BAL.E 7OR ! CRE,N (A NEGATIVE BAL.E7 9
  ! POOL AT ! 5D (! F/ YE> : MI<T
  O!RWISE RESULT F ! 4POSI;N4 ,9 S* A
  SITU,N1 ! TAXPAY] C ELECT "U SUBSEC;N
  #AD7#F7 6EXCLUDE F ! CALCUL,N (! BASE
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  6ACQUIRE ! REPLACE;T PROP]TY4 ,?US1 ":
  ALL (! BASE =! ,,EC AM.T IS S US$1 !
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  ,,EC AM.T 9 ! F/ YE> OR CAUSE A
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  YE>4 ,! AM.T EXCLUD$ 9 ? MANN] F !
  CALCUL,N (! BASE =! ,,EC AM.T T WD
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  RESULT+ DEF]R$ ,,EC AM.T1 : IS
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  ! SECOND YE> B IS (FSET 0! 9CR1SE 6!

                                     #DJ
             ,,IT-#ABC;,R#F          F#G
  POOL 9 ! SAME YE> ( ?REE-QU>T]S (!
  ,,EC EXP5DITURE =! REPLACE;T PROP]TY4

  ,SUBSEC;N #AD7#G7 3TA9S REQUIRE;TS T
  M/ 2 SATISFI$ 9 ORD] =A PROP]TY
  6QUALIFY Z A REPLACE;T PROP]TY =A =M]
  PROP]TY4 ,SEE AL ! CURR5T V].N ( ,,IT-
  #BEI4
--------------------------------------#H
#BF4 ,AN ELEC;N "U SUBSEC;N #AD7#F7 IS
  6BE FIL$ )! TAXPAY]'S RETURN =! YE> 9
  : ! REPLACE;T PROP]TY IS ACQUIR$4 ,9 !
  SITU,N DESCRIB$ 9 P>AGRAPH #BE ABV1
  I4E41 ": ! =M] PROP]TY IS 4POS$ ( 9 !
  F/ YE> &! REPLACE;T PROP]TY IS N
  ACQUIR$ UNTIL ! SECOND YE>1 ! TAXPAY]
  %D 9ITI,Y FILE ! RETURN =! F/ YE> )\T
  ! B5EFIT (! SUBSEC;N #AD7#F7 ELEC;N4
  ,!N1 :5 ! ELEC;N IS FIL$ )! RETURN =!
  SECOND YE>1 ! TAXPAY] MAY REQUE/ A
  REASSESS;T (! TAX =! F/ YE>4 ,FUR!R
  "PICUL>S MAY 2 F.D 9 ! CURR5T V].N (
  ,,IT-#BEI4
                                     #DA
         ,TRANSI;NAL ,PROVI.NS       A#H
    
#BG4 ,Z 9DICAT$ 9 ,S*$ULE ,A1 ! 9CLU.N
  RATE "U ! NEW SY/EM IS .?REE-QU>T]S1
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  ! TAXPAY]'S .TOTAL .PROCE$S F !
  4POSI;N ( ,,EC PROP]TY >E US$ 9 ! BASE
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  NEW SY/EM1 ":AS ONLY ! POR;N (! TOTAL
  PROCE$S 2COM+ .PAYA# 6! TAXPAY] 9 ANY
  "PICUL> YE> 0 US$ 9 ! BASE =! ,,EC
  AM.T = T ."PICUL> .YE> "U ! OLD SY/EM4
  ,! -+-9TO-=CE RULES =! NEW SY/EM1 Z
  DESCRIB$ 2L1 P]MIT ! TRANSI;N F ! OLD
  SY/EM 6! NEW SY/EM :ILE TAK+ 96A3.T ^!
  DI6];ES4
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  O3URR$ 9 A YE> T 0 "U ! OLD SY/EM
  7I4E41 2F ! TAXPAY]'S ADJU/;T "T7 EI
  7A7 ON OR 2F ,JUNE #AG1 #AIHG1 OR
  7B7 AF ,JUNE #AG1 #AIHG1 B PURSUANT 6!
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                                     #DB
             ,,IT-#ABC;,R#F          B#H
  AN ,,EC AM.T F ! 4POSI;N C / O3UR 9 A
  LAT] YE> "U ! NEW SY/EM 7I4E41 AF !
  TAXPAY]'S ADJU/;T "T7 ": A POR;N (!
  PROCE$S F ! 4POSI;N DOES N 2COME PAYA#
  UNTIL T LAT] YE>4 ,9 CALCULAT+ ! ,,EC
  AM.T = T LAT] YE> "U ! NEW SY/EM1 ONLY
  ! POR;N (! TOTAL PROCE$S F ! 4POSI;N T
  2COMES PAYA# 6! TAXPAY] 9 T YE> W 2
  US$ 9 ! BASE =! ,,EC AM.T4 ,! 9CLU.N
  RATE IS ?REE-QU>T]S4 ,NOTE T1 9 MO/
  CASES1 ! 4POSI;N HAS RESULT$ 9 AN ,,EC
  AM.T = AN E>LI] YE> "U ! OLD SY/EM 72C
  A POR;N (! PROCE$S 2CAME PAYA# 6!
  TAXPAY] 9 T E>LI] YE>7 & ?US ! \TLAYS
  & EXP5SES MADE OR 9CURR$ 9 3NEC;N )!
  4POSI;N H ALR BE5 TAK5 96A3.T 9 ! BASE
  =! ,,EC AM.T = T E>LI] YE>4
#BI4 ,": A 4POSI;N ( AN ,,EC PROP]TY
  O3URR$ "U ! OLD SY/EM 7I4E41 2F !
  TAXPAY]'S ADJU/;T "T7 B AF ,JUNE #AG1
  #AIHG1 O!RWISE ?AN PURSUANT 6! T]MS (
  AN OBLIG,N 5T]$ 96IN WRIT+ 2F ,JUNE
  #AH1 #AIHG1 9 CALCULAT+ ! ,,EC AM.T =!
  YE> ( 4POSI;N "U ! OLD SY/EM !     #DC
             ,,IT-#ABC;,R#F          C#H
  TAXPAY]'S TOTAL PROCE$S F ! 4POSI;N M/
  2 US$ 9 ! BASE =! ,,EC AM.T 7?US1 "!
  _C 2 ANY FUR!R ,,EC AM.T F ! 4POSI;N 9
  A LAT] YE> "U ! NEW SY/EM74 ,! 9CLU.N
  RATE IS "O-HALF4
#CJ4 ,": A 4POSI;N ( AN ,,EC PROP]TY
  O3URS 9 A YE> "U ! NEW SY/EM 7I4E41 AF
  ! TAXPAY]'S ADJU/;T "T7 B PURSUANT 6!
  T]MS ( AN OBLIG,N 5T]$ 96IN WRIT+ ON
  OR 2F ,JUNE #AG1 #AIHG1 AN ,,EC AM.T
  O3URS "U ! NEW SY/EM = EA* YE> 9 : ANY
  POR;N (! PROCE$S F ! 4POSI;N 2COMES
  PAYA# 6! TAXPAY]4 ,9 CALCULAT+ ! ,,EC
  AM.T = EA* ( ^! YE>S1 ! 9CLU.N RATE IS
  ?REE-QU>T]S &! POR;N (! PROCE$S F !
  4POSI;N T 2COMES PAYA# 6! TAXPAY] 9 T
  YE> IS TAK5 96A3.T 9 ! BASE =! ,,EC
  AM.T4 ,9 ! F/ ( ^! YE>S 7: MAY OR MAY
  N 2 ! YE> (! 4POSI;N71 \TLAYS &
  EXP5SES MADE OR 9CURR$ 0! TAXPAY] 9
  3NEC;N )! 4POSI;N >E AL TAK5 96A3.T 9
  ! BASE =! ,,EC AM.T1 6! EXT5T T S*
  \TLAYS & EXP5SES 7 N O!RWISE DEDUCTI#
  9 -PUT+ ! TAXPAY]'S 9COME4         #DD
             ,,IT-#ABC;,R#F          D#H
#CA4 ,SUBSEC;N #AD7#C71 Z DESCRIB$ 9
  P>AGRAPH #BC ABV1 APPLIES 6ACQUISI;NS
  ( ,,EC PROP]TY 0A TRANSF]EE F A NON-
  >M'S L5G? TRANSF]OR T O3UR AF #AIHG4
  ,H["E1 IF S* AN ACQUISI;N O3URR$ AF
  #AIHG B 2F ! TRANSF]EE'S ADJU/;T "T1
  I4E41 :ILE ! OLD SY/EM 0 / 9 E6ECT =!
  TRANSF]EE1 A FACTOR ( #B R ?AN F\R-
  ?IRDS IS US$ 9 ! =MULA 9 P>AGRAPH #BC
  ABV :5 DET]M9+ ! TRANSF]EE'S ,,EC
  EXP5DITURE =! PROP]TY4 "O-HALF1 R ?AN
  ?REE-QU>T]S1 ( T ,,EC EXP5DITURE IS !N
  A4$ 6! TRANSF]EE'S POOL "U ! OLD
  SY/EM4
#CB4 ,": ! TAXPAY] HAS 4POS$ (A =M]
  PROP]TY 9 ! LA/ YE> "U ! OLD SY/EM &
  ACQUIR$ A REPLACE;T PROP]TY 9 ! F/ YE>
  "U ! NEW SY/EM1 A SUBSEC;N #AD7#F7
  ELEC;N C 2 MADE 9 ESS5TI,Y ! SAME
  MANN] Z DESCRIB$ 9 P>AGRAPHS #BE & #BF
  ABV4 ,X %D 2 NOT$1 H["E1 T :E!R !
  TAXPAY] %D USE
  7A7 ! TAXPAY]'S TOTAL PROCE$S F !
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             ,,IT-#ABC;,R#F          E#H
  7B7 ONLY ! POR;N ( S* PROCE$S T 2CAME
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  ? 3NEC;N1 SEE ! TRANSI;NAL RULES
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  "U ! .NEW SY/EM71 BO? ! DEF]R$ ,,EC
  AM.T 6BE DEDUCT$ F ! POOL =! =M]
  PROP]TY &! AM.T 6BE A4$ 6! POOL 9
--------------------------------------#I
  3NEC;N )! ,,EC EXP5DITURE =! REPLACE;T
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  IS US$4
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             ,,IT-#ABC;,R#F          A#I
  2 3SID]$1 9CLUD+ ^? REG>D+ SEC;N #BA
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  YE>S "U ! OLD SY/EM7 REDUC$ ! AM.T
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  #AIHD CAL5D> YE>4 ,H["E1 ! T]MS (A
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  TURNS \1 "S "T AF ! TAXPAY]'S ADJU/;T
  "T1 I4E41 9 A YE> OR YE>S "U ! NEW
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  #BA7#A7 (! ,,ITAR Z X R1D 9 ! YE> (!
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  T AM.T PAYA# Z DET]M9$ 9 ! YE> (!
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                                     #DG
             ,GOV]N;T ,"RS           B#I
    
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  O3URR$ 9 A YE> T 0 "U ! OLD SY/EM1 ^!
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  C / APPLY =! PURPOSE ( DET]M9+ AN AM.T
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             ,,IT-#ABC;,R#F          C#I
  T]MS ( AN OBLIG,N 5T]$ 96IN WRIT+ 2F
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  .TOTAL .PROCE$S R ?AN ) RESPECT 6!
  POR;N ( S* PROCE$S .PAYA# 6! TAXPAY]4
  ,! TOTAL PROCE$S F ! 4POSI;N OR
  EXPIR,N (! GOV]N;T "R >E CALCULAT$ Z !
  ACTUAL TOTAL PROCE$S M9US ! GRT] ( TWO
  AM.TS3
  7A7 ! CO/ (! 8GOV]N;T "R0 OR !
    TAXPAY]'S 8ORIG9AL "R0 9 RESPECT (!
    GOV]N;T "R 7Z DEF9$ 9 SUBSEC;N
    #BA7#C7 (! ,,ITAR7 9CURR$ PRIOR
    6#AIGB 6! EXT5T T S* CO/ 0 N O!RWISE
    DEDUCT$ 9 -PUT+ ! 9COME (! TAXPAY] =
    ANY TAX,N YE>1 &
  7B7 ! FAIR M>KET VALUE (! TAXPAY]'S
    8SPECIFI$ "R0 9 RESPECT (! GOV]N;T
    "R 7Z DEF9$ 9 SUBSEC;N #BA7#C7 (!
    ,,ITAR7 Z AT ,DECEMB] #CA1 #AIGA4
  
  
                                     #DI
        ,CAPITAL ,DIVID5D ,A3.T      D#I
    
#CE4 ,AN AM.T RELAT+ 6A CORPOR,N'S GA9
  ON ! 4POSI;N ( AN ,,EC PROP]TY IS
  9CLUD$ 9 XS 8CAPITAL DIVID5D A3.T0
  0VIRTUE ( XS DEF9I;N 9 SUBSEC;N
  #HI7#A74 ,= FUR!R "PICUL>S ON ? TOPIC1
  SEE ! CURR5T V].N ( ,,IT-#FF4

      ,BAD ,DEBTS ,F ,SALE ( ,,EC
                ,PROP]TY
    
#CF4 ,SUBSEC;N #BJ7#D.B7 PROVIDES =A
  DEDUC;N =A BAD DEBT >IS+ ON A 4POSI;N
  ( ,,EC PROP]TY O3URR+ AF ,JUNE #AG1
  #AIHG 7O!R ?AN ON A 4POSI;N PURSUANT
  6! T]MS ( AN OBLIG,N 5T]$ 96IN WRIT+
  2F ,JUNE #AH1 #AIHG74 ,FUR!R "PICUL>S
  REG>D+ SUBSEC;N #BJ7#D.B7 >E 3TA9$ 9 !
  CURR5T V].N ( ,,IT-#DDB4 ,=A BAD DEBT
  >IS+ ON A 4POSI;N ( ,,EC PROP]TY
  O3URR+ 2F ,JUNE #AH1 #AIHG 7OR ON A
  4POSI;N PURSUANT 6! T]MS ( AN OBLIG,N
  5T]$ 96IN WRIT+ 2F ,JUNE #AH1 #AIHG71
  P>AGRAPH #BJ7#A77P7 MAY / APPLY-   #EJ
             ,,IT-#ABC;,R#F          E#I
  SEE P>AGRAPH P>AGRAPH #AI (
  ,,IT-#ABC;,R#D4

    ,AM.T ,N ,DUE ,UNTIL ,LAT] ,YE>
    
#CG4 ,": A SALE ( AN ,,EC PROP]TY
  RESULTS 9 AN 9COME 9CLU.N 9 ! YE> (
  4POSI;N "U SUBSEC;N #AD7#A7 Z DESCRIB$
  ABV1 B "S "P (! SALE PRICE IS N DUE
  UNTIL A LAT] YE>1 A RES]VE "U P>AGRAPH
  #BJ7#A77N7 IS N P]MITT$4 ,? IS 2C !
  SALE ( AN ,,EC PROP]TY IS N 3SID]$ 6BE
  A SALE ( PROP]TY 8IN ! C\RSE (!
  BUSI;S0 Z REQUIR$ 0P>AGRAPH
  #BJ7#A77N74

            ,T]M9AL ,ALL[.E
    
#CH4 ,SEC;N #BD 3TA9S A RULE ALL[+1 "U
  C]TA9 3DI;NS1 A TAXPAY] :O HAS C1S$
  6C>RY ON A BUSI;S 6DEDUCT ! FULL AM.T
  ( ANY POSITIVE BAL.E 9 ! CUMULATIVE
  ,,EC POOL =! BUSI;S4 ,AN EXCEP;N 6?
  RULE O3URS ": "! IS A 8ROLLOV]0    #EA
             ,,IT-#ABC;,R#F          F#I
  (! TAXPAY]'S POSITIVE BAL.E 9 ! POOL
  6! TAXPAY]'S SP\SE OR CORPOR,N4 ,=
  FUR!R 4CUS.N ( ? TOPIC1 SEE ! CURR5T
  V].N ( ,,IT-#CAC4 ,X %D AL 2 NOT$ T
  SUBP>AGRAPH #CI7#A77B77;II7 PRECLUDES
  CLAIMS = CAPITAL LOSSES ON ! 4POSI;N (
  ,,EC PROP]TY :E!R OR N ! BUSI;S 6: X
  RELATES HAS C1S$4
-------------------------------------#AJ
      ,ELIGI# ,CAPITAL ,PROP]TY (A
            ,DEC1S$ ,TAXPAY]
    
#CI4 ,! RULES REG>D+ ,,EC PROP]TY T
  APPLY Z A RESULT (! D1? (A TAXPAY]1
  9CLUD+ ^? P]TA9+ 6! ACQUISI;N ( ,,EC
  PROP]TY (A DEC1S$ TAXPAY] 0ANO!R
  P]SON1 >E 4CUSS$ 9 ! CURR5T V].N (
  ,,IT-#CAC4





                                     #EB
           ,RELAT$ ,BULLET9S        A#AJ
    
  ,! TITLES (! 9T]PRET,N BULLET9S REF]R$
6ABV >E Z FOLL[S3
  ,,IT-#FF ,CAPITAL ,DIVID5DS
  ,,IT-#ACH ,-PUT,N & ,FL[-,"? (
    ,"PN]%IP ,9COME
  ,,IT-#ADC ,M1N+ ( ,ELIGI# ,CAPITAL
    ,EXP5DITURE
  ,,IT-#BJF ,SEP>ATE ,BUSI;SES
  ,,IT-#BEI ,EX*ANGES ( ,PROP]TY
  ,,IT-#CAC ,ELIGI# ,CAPITAL ,PROP]TY--
    ,RULES ,": A ,TAXPAY] ,HAS ,C1S$
    ,C>RY+ ON A ,BUSI;S OR ,HAS ,DI$
  ,,IT-#CHA ,TRU/S--,CAPITAL ,GA9S &
    ,LOSSES &! ,FL[-,"? ( ,TAXA#
    ,CAPITAL ,GA9S 6,B5EFICI>IES
  ,,IT-#CHF ,ELIGI# ,CAPITAL ,AM.TS
  ,,IT-#DDB ,BAD ,DEBTS & ,RES]VES =
    ,D\BT;L ,DEBTS




                                     #EC
              ,S*$ULE ;,A            #AA
     ,-P>ISON ( ,OLD & ,NEW ,SY/EMS
    
,TRANSCRIB]'S NOTE3
  7,S*$ULE ;,A 0 SET-UP 9 F\R COLUMNS4
  ,COLUMN #A3 ,TRANSAC;N OR ,ITEM
  ,COLUMN #B3 ,TR1T;T "U3 ,OLD ,SY/EM
    ,ALL ,TAXPAY]S
  ,COLUMN #C3 ,TR1T;T "U3 ,NEW ,SY/EM
    ,F/ ,CATEGORY 7#A7
  ,COLUMN #D3 ,TR1T;T "U3 ,NEW ,SY/EM
    ,SECOND ,CATEGORY 7#B7
  ,SEE FOOTNOTE AT ! 5D ( ,S*$ULE ;,A47

,TRANSAC;N OR ITEM3
  ,BAL.E 9 POOL AT 5D ( IMMLY .PREC$+
  YE> "U ! .OLD SY/EM
,OLD ,SY/EM ALL TAXPAY]S3
  ,2COMES OP5+ BAL.E 9 POOL 9 .CURR5T
  YE>
,NEW ,SY/EM F/ CATEGORY3
  ,?REE &A HALF ( BAL.E 2COMES OP5+
  BAL.E 9 POOL 9 .CURR5T YE> 7F/ YE> "U
  .NEW SY/EM74 ,SEE P>AGRAPH #F ( ?
  BULLET94                           #ED
             ,,IT-#ABC;,R#F         A#AA
,NEW ,SY/EM SECOND CATEGORY3
  ,?REE &A HALF ( BAL.E 2COMES OP5+
  BAL.E 9 POOL 9 .CURR5T YE> 7F/ YE> "U
  .NEW SY/EM74 ,SEE P>AGRAPH #F ( ?
  BULLET94

,TRANSAC;N OR ITEM3
  ,BAL.E 9 POOL AT 5D ( IMMLY .PREC$+
  YE> "U ! .NEW SY/EM
,OLD ,SY/EM ALL TAXPAY]S3
  ,N/,A
,NEW ,SY/EM F/ CATEGORY3
  ,2COMES OP5+ BAL.E 9 POOL 9 .CURR5T
  YE>4 ,SEE P>AGRAPH #F ( ? BULLET94
,NEW ,SY/EM SECOND CATEGORY3
  ,2COMES OP5+ BAL.E 9 POOL 9 .CURR5T
  YE>4 ,SEE P>AGRAPH #F ( ? BULLET94

,TRANSAC;N OR ITEM3
  ,,EC .EXP5DITURE
,OLD ,SY/EM ALL TAXPAY]S3
  ,9CR1SE POOL 0"O-HALF ( ,,EC
  EXP5DITURE4
                                     #EE
             ,,IT-#ABC;,R#F         B#AA
,NEW ,SY/EM F/ CATEGORY3
  ,9CR1SE POOL 0?REE-QU>T]S ( ,,EC
  EXP5DITURE4 ,SEE P>AGRAPH #G ( ?
  BULLET94
,NEW ,SY/EM SECOND CATEGORY3
  ,9CR1SE POOL 0?REE-QU>T]S ( ,,EC
  EXP5DITURE4 ,SEE P>AGRAPH #G ( ?
  BULLET94

,TRANSAC;N OR ITEM3
  .,4POSI;N ( ,,EC PROP]TY
,OLD ,SY/EM ALL TAXPAY]S3
  ,DECR1SE POOL 0,,EC AM.T EQUALS "O-
  HALF MULTIPLI$ BY 7PROCE$S .PAYA# 6!
  TAXPAY] LESS \TLAYS & EXP5SES74
,NEW ,SY/EM F/ CATEGORY3
  ,DECR1SE POOL 0,,EC AM.T EQUALS ?REE-
  QU>T]S MULTIPLI$ BY 7TAXPAY]'S .TOTAL
  PROCE$S LESS \TLAYS & EXP5SES74 ,SEE
  P>AGRAPH #I ( ? BULLET94
,NEW ,SY/EM SECOND CATEGORY3
  ,DECR1SE POOL 0,,EC AM.T EQUALS ?REE-
  QU>T]S MULTIPLI$ BY 7TAXPAY]'S .TOTAL
                                     #EF
             ,,IT-#ABC;,R#F         C#AA
  PROCE$S LESS \TLAYS & EXP5SES74 ,SEE
  P>AGRAPH #I ( ? BULLET94

,TRANSAC;N OR ITEM3
  .,POSITIVE .BAL.E 9 POOL AT 5D (! YE>
,OLD ,SY/EM ALL TAXPAY]S3
  ,MAY DEDUCT UP 6.#AJ@3P ( POSITIVE
  BAL.E = PURPOSES ( -PUT+ 9COME = YE>4
  ,DECR1SE POOL 0AM.T DEDUCT$4
,NEW ,SY/EM F/ CATEGORY3
  ,MAY DEDUCT UP 6.#G@3P ( POSITIVE
  BAL.E = PURPOSES ( -PUT+ 9COME = YE>4
  ,DECR1SE POOL 0AM.T DEDUCT$4 ,SEE
  P>AGRAPH #AA ( ? BULLET94
,NEW ,SY/EM SECOND CATEGORY3
  ,MAY DEDUCT UP 6.#G@3P ( POSITIVE
  BAL.E = PURPOSES ( -PUT+ 9COME = YE>4
  ,DECR1SE POOL 0AM.T DEDUCT$4 ,SEE
  P>AGRAPH #AA ( ? BULLET94

,TRANSAC;N OR ITEM3
  .,NEGATIVE .BAL.E 9 POOL AT 5D (! YE>
,OLD ,SY/EM ALL TAXPAY]S3
  ,9COME 9CLU.N O3URS EQUAL 6.FULL   #EG
             ,,IT-#ABC;,R#F         D#AA
  AM.T ( NEGATIVE BAL.E4 ,9CR1SE POOL 0!
  9COME 9CLU.N 6BR+ BAL.E BACK 6NIL4
,NEW ,SY/EM F/ CATEGORY3
  ,A SUBP>AGRAPH #AD7#A77A77;IV7
  RECAPTURE 9COME 9CLU.N O3URS IF
  DEDUC;NS PREVI\SLY CLAIM$4 ,"! MAY AL
  2
  --A SUBP>AGRAPH #AD7#A77A77;V7 ..DEEM$
    TAXA# CAPITAL .GA9 7: MAY QUALIFY =A
    CAPITAL GA9S DEDUC;N7 IF ! FISCAL
    P]IOD 5DS 2F ,FEBRU>Y #BC1 #AIID
    7#C71 OR
  --A SUBP>AGRAPH #AD7#A77A77;V7 9COME
    9CLU.N 7: MAY QUALIFY =A CAPITAL
    GA9S DEDUC;N = QUALIFI$ F>M PROP]TY7
    IF ! FISCAL P]IOD 5DS AF ,FEBRU>Y
    #BB1 #AIID #C1
  EI ( : IS REDUC$ 0AN .ADJU/;T 7IF "! 7
  OLD SY/EM DEDUC;NS74 ,A SUB-P>AGRAPH
  #AD7#A77A77;V7 9COME 9CLU.N MAY AL 2
  REDUC$ 0M1NS (! 8EXEMPT GA9S BAL.E40
  ,9CR1SE POOL 0ALL ^! AM.TS 7I4E41 !
  SUBP>AGRAPH #AD7#A77A77;IV7 RECAPTURE
  9COME 9CLU.N1 ! SUBP>AGRAPH        #EH
             ,,IT-#ABC;,R#F         E#AA
  #AD7#A77A77;V7 DEEM$ TAXA# CAPITAL GA9
  OR SUBP>AGRAPH #AD7#A77A77;V7 9COME
  9CLU.N1 ! ADJU/;T1 &! AM.T ( EXEMPT
  GA9S BAL.E US$7 6BR+ POOL BAL.E BACK
  6NIL4 ,SEE P>AGRAPHS #D 6#AG ( ?
  BULLET94
,NEW ,SY/EM SECOND CATEGORY3
  ,9COME 9CLU.N IS EQUAL 6! NEGATIVE
  BAL.E LESS AN .ADJU/;T 7: O3URS IF "!
  7 OLD SY/EM DEDUC;NS74 ,9CR1SE POOL
  0BO? AM.TS 7I4E41 ! 9COME 9CLU.N &!
  ADJU/;T7 6BR+ BAL.E BACK 6NIL4 ,SEE
  P>AGRAPH #BB ( ? BULLET94

7#A7 ,=A DET]M9,N ( : TAXPAY]S >E 9CLUD$
  9 ! F/ CATEGORY1 SEE P>AGRAPH #AC ( ?
  BULLET94
7#B7 ,=A DET]M9,N ( : TAXPAY]S >E 9CLUD$
  9 ! SECOND CATEGORY1 SEE P>AGRAPH #BA
  ( ? BULLET94
7#C7 ,AN 9DIVIDUAL "PN]'S %>E (A
  "PN]%IP'S SUBP>AGRAPH #AD7#A77A77;V7
  AM.T MAY AL 2 A# 6BE REDUC$ 0M1NS (!
                                     #EI
             ,,IT-#ABC;,R#F         F#AA
  "PN]'S 8EXEMPT CAPITAL GA9 BAL.E0--SEE
  P>AGRAPH #BJ ( ? BULLET94
-------------------------------------#AB
              ,S*$ULE ;,B
         ,! ,CUMULATIVE ,ELIGI#
             ,CAPITAL ,POOL
       ,EXAMPLE ( ,CALCUL,N "U !
              ,NEW ,SY/EM
    
,ASSUMP;NS3
  #A7 ,! TAXPAY] IS AN 9DIVIDUAL ^:
    BUSI;S HAS A FISCAL YE> 5D (
    ,DECEMB] #CA4
  #B7 ,! BAL.E 9 ! POOL AT ! 5D (! #AIHG
    TAX,N YE> "U ! OLD SY/EM 0
    4#AJJ1JJJ4
  #C7 ,! TOTAL NET AM.T ( P>AGRAPH
    #BJ7#A77B7 DEDUC;NS LESS SUBSEC;N
    #AD7#A7 9COME 9CLU.NS "U ! OLD SY/EM
    0 4#AE1JJJ4
  #D7 ,! ACQUISI;NS & 4POSI;NS ( ,,EC
    PROP]TY1 RESULT+ 9 ,,EC EXP5DITURES
    & ,,EC AM.TS1 RESPECTIVELY1 >E Z
                                     #FJ
             ,,IT-#ABC;,R#F         A#AB
    9DICAT$ 2L "U ! TRANSAC;NS = EA*
    YE>4
  #E7 ,! ,,EC PROP]TY : IS PUR*AS$ 9
    #AIIC REPLACES ! ,,EC PROP]TY SOLD 9
    #AIIB4 ,! TAXPAY] "!=E MAKES A
    SUBSEC;N #AD7#F7 ELEC;N :5 FIL+ !
    #AIIC RETURN & REQUE/S T ! ,,EC AM.T
    =! #AIIB SALE 2 ADJU/$ 9 A3ORD.E ) T
    ELEC;N4
  #F7 ,! ,,EC PROP]TY : ! TAXPAY]
    PUR*ASES 9 #AIID = 4#AJJ1JJJ IS F A
    NON->M'S L5G? V5DOR :O 9CURS NO
    SELL+ EXP5SES4 ,! TRANSAC;N RESULTS
    9 A SUBP>AGRAPH #AD7#A77A77;V7 9COME
    9CLU.N ( 4#FJ1JJJ =! V5DOR4 ,H["E1 !
    ,,EC PROP]TY IS A QUALIFI$ F>M
    PROP]TY & ALL (! 4#FJ1JJJ IS %ELT]$
    F TAX,N 9 ! V5DOR'S H&S 0M1NS (A
    SEC;N #AAJ.F CAPITAL GA9S DEDUC;N4
  



                                     #FA
             ,,IT-#ABC;,R#F         B#AB
,TRANSCRIB]'S NOTE3
  7,! FOLL[+ 0 SET-UP 9 FIVE COLUMNS4
  ,COLUMN #A3 ,TRANSAC;N OR ,ITEM
  ,COLUMN #B3 ,V>IA# 9 #AD7#E7 DEF9I;N (
    8CUMULATIVE ,,EC0
  ,COLUMN #C3 ,9CR1SE
  ,COLUMN #D3 ,DECR1SE
  ,COLUMN #E3 ,BAL.E7
  
,TRANSAC;N OR ,ITEM
#AIHH ,TAX,N ,YE>
,OP5+ BAL.E3 ?REE &A HALF MULTIPLI$
  04#AJJ1JJJ 7SEE ASSUMP;N #B7
,V>IA#3 ,V>IA# ;,C
,BAL.E3 4#AEJ1JJJ

,,EC EXP5DITURE = 4#EJ1JJJ3 ,ADD 6POOL
  ?REE-QU>T]S ( ,,EC EXP5DITURE
,V>IA#3 ,V>IA# ;,A
,9CR1SE3 4#CG1EJJ
,BAL.E 74#AEJ1JJJ PLUS 4#CG1EJJ73
  4#AHG1EJJ

                                     #FB
             ,,IT-#ABC;,R#F         C#AB
,DEDUCT F POOL P>AGRAPH #BJ7#A77B7
  DEDUC;N AT #G@3P
,V>IA#3 ,V>IA# ;,P
,DECR1SE3 4#AC1ABE
,BAL.E 74#AHG1EJJ M9US 4#AC1ABE73
  4#AGD1CGE

#AIHI ,TAX,N ,YE>
,DEDUCT F POOL P>AGRAPH #BJ7#A77B7
  DEDUC;N AT #G@3P
,V>IA#3 ,V>IA# ;,P
,DECR1SE3 4#AB1BJF
,BAL.E 74#AGD1CGE M9US 4#AB1BJF73
  4#AFB1AFI

#AIIJ ,TAX,N ,YE>
,SALE ( ,,EC PROP]TY3
  ,SALE PROCE$S 4#DAJ1JJJ
  ,LESS SELL+ EXP5SES 4#AJ1JJJ
  ,BASE =! ,,EC AM.T 4#DJJ1JJJ
,DEDUCT F POOL ,,EC AM.T EQUALS ?REE-
  QU>T]S ( BASE
,V>IA#3 ,V>IA# ;,E
,DECR1SE3 4#CJJ1JJJ                  #FC
             ,,IT-#ABC;,R#F         D#AB
,BAL.E 74#AFB1AFI M9US 4#CJJ1JJJ73
  74#ACG1HCA7 7#A7

7#A7 ,? IS ! NEGATIVE BAL.E (! 5D (!
  #AIIJ TAX,N YE>4

,SUBP>AGRAPH #AD7#A77A77;IV7 RECAPTURE
  9COME 9CLU.N1 : IS LIMIT$ 6TOTAL NET
  RECAPTURA# AM.T3
  ,OLD SY/EM 7SEE ASSUMP;N #C7  4#AE1JJJ
  ,NEW SY/EM3 ,PREVI\S P>AGRAPH
    #BJ7#A77B7 DEDUC;NS3
  #AIHH """""""""""""""" 4#AC1ABE
  #AIHI """""""""""""""" 4#AB1BJF
  #AIIH PLUS #AIHI """"" 4#BE1CCA
  ,LESS PREVI\S 9COME
    9CLU.NS """""""""""" ,N/,A  4#BE1CCA
,SUBP>AGRAPH #AD7#A77A77;IV7
  RECAPTURE 9COME 9CLU.N--ADD ?
  AM.T BACK 6! POOL """"""""""" 4#DJ1CCA
,V>IA#3 ,V>IA# ;,R
,9CR1SE 4#DJ1CCA 7#B7

                                     #FD
             ,,IT-#ABC;,R#F         E#AB
7#B7 ,! ?REE 8ADD BACKS0 BR+ ! POOL
  BAL.E F @47#ACG1HCA7 BACK 6NIL4
-------------------------------------#AC
,SUBP>AGRAPH #AD7#A77A77;V7 DEEM$ TAXA#
  CAPITAL GA93
  ,NEGATIVE BAL.E 9 !
    POOL AT ! 5D (! YE>
    7SEE ABV7 """""""""""""""" 4#ACG1HCA
,LESS ! SUM (
  ,SUBP>AGRAPH
    #AD7#A77A77;IV7
    RECAPTURE 9COME
    9CLU.N =! YE> 7SEE
    ABV7 """"""""""""" 4#DJ1CCA
,"O-HALF (! 4#AE1JJJ
  POR;N (! NET RECAPTURA#
  AM.T T ORIG9ATES F !
  OLD SY/EM 7SEE ASSUMP;N
  #C7 """""""""""""""" 4#G1EJJ  4#DG1HCA
,SUBP>AGRAPH
  #AD7#A77A77;V7 DEEM$
  TAXA# CAPITAL GA9--ADD
  ? AM.T BACK 6! POOL """"""""" 4#IJ1JJJ
                                     #FE
             ,,IT-#ABC;,R#F         A#AC
,V>IA#3 ,V>IA# ;,B
,9CR1SE3 4#IJ1JJJ 7#B7

,ADD BACK 6POOL "O-HALF (! 4#AE1JJJ
  POR;N (! NET RECAPTURA# AM.T T
  ORIG9ATES F ! OLD SY/EM 7SEE CALCUL,N
  ( DEEM$ TAXA# CAPITAL GA9 IMMLY ABV7
,V>IA#3 ,V>IA# ,D4#A
,9CR1SE3 4#G1EJJ 7#B7
,BAL.E3 ,,NIL 7#B7

#AIIA ,TAX,N ,YE>
,,EC EXP5DITURE = 4#AJJ1JJJ3 ,ADD 6POOL
  ?REE-QU>T]S ( ,,EC EXP5DITURE
,V>IA#3 ,V>IA# ;,A
,9CR1SE3 4#GE1JJJ
,BAL.E 7NIL PLUS 4#GE1JJJ73 4#GE1JJJ

,DEDUCT F POOL P>AGRAPH #BJ7#A77B7
  DEDUC;N AT #G@3P
,V>IA#3 ,V>IA# ;,P
,DECR1SE3 4#E1BEJ
,BAL.E3 74#GE1JJJ M9US 4#E1BEJ7 4#FI1GEJ
                                     #FF
             ,,IT-#ABC;,R#F         B#AC
#AIIB ,TAX,N ,YE>
,SALE ( ,,EC PROP]TY3
  ,SALE PROCE$S """""""""""""" 4#BAJ1JJJ
  ,LESS SELL+ EXP5SES """"""""" 4#AJ1JJJ
  ,BASE = ,,EC AM.T Z
    O!RWISE DET]M9$
    74#BAJ1JJJ M9US
    4#AJ1JJJ7 """""""""""""""" 4#BJJ1JJJ
  ,LESS AM.T EXCLUD$ "U
    SUBSEC;N #AD7#F7
    ELEC;N FIL$ )! #AIIC
    RETURN 7SEE ASSUMP;N
    #E7 """""""""""""""""""""" 4#BJJ1JJJ
  ,REVIS$ BASE = ,,EC
    AM.T 74#BJJ1JJJ M9US
    4#BJJ1JJJ7 """""""""""""""" 4# ,,NIL
,DEDUCT F POOL ,,EC AM.T EQUALS ?REE-
  QU>T]S ( REVIS$ BASE
,V>IA#3 ,V>IA# ;,E
,DECR1SE3 ,,NIL
,BAL.E 74#FE1GEJ M9US NIL73 4#FI1GEJ


                                     #FG
             ,,IT-#ABC;,R#F         C#AC
,DEDUCT F POOL P>AGRAPH #BJ7#A77B7
  DEDUC;N AT #G@3P
,V>IA#3 ,V>IA# ;,P
,DECR1SE3 4#D1HHC
,BAL.E 74#FI1GEJ M9US 4#D1HHC73 4#FD1HFG

#AIIC ,TAX,N ,YE>
,BASE =! ,,EC AM.T EQUALS ! 4#BJJ1JJJ
  EXCLUD$ F BASE = ,,EC AM.T = #AIIB "U
  SUBSEC;N #AD7#F7 ELEC;N FIL$ ) ? YE>'S
  RETURN 7SEE ASSUMP;N #E73
,DEDUCT F POOL ,,EC AM.T EQUALS ?REE-
  QU>T]S ( T BASE
,V>IA#3 ,V>IA# ;,E
,DECR1SE3 4#AEJ1JJJ
,BAL.E 74#FD1HFG M9US 4#AEJ1JJJ73
  74#HE1ACC7

,,EC EXP5DITURE = 4#BDJ1JJJ 6REPLACE
  ,,EC PROP]TY SOLD 9 #AIIB 7SEE
  ASSUMP;N #E7
,ADD 6POOL ?REE-QU>T]S ( ,,EC EXP5DITURE
,V>IA#3 ,V>IA# ;,A
,9CR1SE3 4#AHJ1JJJ                   #FH
             ,,IT-#ABC;,R#F         D#AC
,BAL.E 774#HE1ACC7 PLUS 4#AHJ1JJJ73
  4#ID1HFG

,DEDUCT F POOL P>AGRAPH #BJ7#A77B7
  DEDUC;N AT #G@3P
,V>IA#3 ,V>IA# ;,P
,DECR1SE3 4#F1FDA
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