Fishing Income 2006

T4004(E) Rev. 06

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Table of contents

• Before you start
  • Is this guide for you?
  • What is fishing income?
  • Forms and publications
  • Penalties
  • Do you need more information?
  • Teletypewriter users
  • Electronic mailing lists
• What's new for 2006?
• Chapter 1 - General information
  • Business and business income
  • How do you calculate your fishing income?
  • Business records
  • Instalment payments
  • Dates to remember
  • What is a partnership?
  • Investment tax credit (ITC)
• Chapter 2 - Form T2121,Statement of Fishing Activities
  • Sole proprietorships
  • Partnerships
  • Identification area
  • Fishing income
  • Fishing expenses
  • Details of equity (page 2 of Form T2121)
  • Details of other partners (page 3 of Form T2121)
• Chapter 3 - Capital cost allowance (CCA)
  • What is CCA?
  • Definitions
  • How much CCA can you claim?
  • How do you make your claim?
  • Classes of depreciable property
  • Special situations
• Chapter 4 - Eligible capital expenditures
  • What is an eligible capital expenditure?
  • What is an annual allowance?
  • What is a cumulative eligible capital (CEC) account?
  • How to calculate your annual allowance
  • Sale of eligible capital property in the 2006 fiscal period
  • Exempt capital gains balance (ECGB)
  • Election
  • Replacement property
  • Eligible capital property of a deceased taxpayer
• Chapter 5 - Fishing losses
  • Fishing and non-capital losses
• Chapter 6 - Capital Gains
  • What is a capital gain?
  • What is a capital loss?
  • Definitions
  • How to calculate your capital gain or loss
  • Qualified fishing property and cumulative capital gains deduction
  • Transfer of fishing property to a child
  • Transfer of fishing property to a spouse or common-law partner
  • Other special rules
• Capital cost allowance (CCA) rates
• GST/HST
• Index
• Your opinion counts!

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Before you start

Is this guide for you?

Use this guide if you earned income as a self-employed fisher or as a partner of a fishing partnership. It will help you calculate the fishing income to report on your 2006 income tax and benefit return.

You can be a self-employed fisher and also a partner of one or more fishing partnerships. For instance, you may have fished for groundfish by yourself and also have been in a lobster-fishing partnership with your child.

Generally, we consider you to be a self-employed fisher if all of the following applies to you:

• you participate in making a catch;
• you are not fishing for your own or another person's sport; and
• you meet at least one of the following conditions:
  • you own or lease the boat that is used to make the catch;
  • you own or lease specialized fishing gear (not including hand tools or clothing) used to make the catch;
  • you hold a species licence issued by Fisheries and Oceans Canada, which is necessary to make the catch; or
  • you have a right of ownership to all or part of the proceeds from the sale of the catch, and you are responsible for all or part of the expenses incurred in making the catch. This means you have to pay a predetermined amount or percentage of the expenses, such as fuel, incurred by the crew in making the catch, regardless of the value of the catch.

What is fishing income?

Fishing income includes income you earned, whether it was payable in cash, property or services from fishing for or catching:

• shellfish;
• crustaceans; and
• marine animals.

Fishing income does not include income you earned from working as an employee in a fishing business.

If you are not sure whether you are a self-employed fisher or an employee, see Guide T4005, Fishers and Employment Insurance.

For basic goods and services tax/harmonized sales tax (GST/HST) information, see GST/HST.

Forms and publications

You can download and print Form T2121, Statement of Fishing Activities. This form can help you calculate your income and expenses for income tax purposes. Although we encourage you to use this form, you do not have to use it. We will accept other types of financial statements.

You have to complete a separate form for each business you operate. Interpretation Bulletin IT-206, Separate Businesses, has more details.

Throughout the guide, we also refer to other forms and publications. If you need any of these, select their links to download and print them. You can also order printed copies of our forms and publications by calling us at 1-800-959-2221.

Penalties

Include all your income when you calculate it for tax purposes. If you fail to report all your income, you may be subject to a penalty of 10% of the amount you failed to report after your first omission.

A different penalty may apply if you knowingly or under circumstances amounting to gross negligence participate in the making of a false statement or omission in your return. In such a case, the penalty is 50% of the tax attributable to the omission or false statement (minimum $100).

Do you need more information?

This guide uses plain language to explain the most common tax situations. If, after reading this guide, you need more information about fishing businesses, visit our Fishers page or call our Business Enquiries line at 1-800-959-5525.

Teletypewriter users

If you use a teletypewriter (TTY), you can call our toll free, bilingual enquiry service at 1-800-665-0354.

Electronic mailing lists

We offer electronic mailing lists for various tax-related subjects. To subscribe, free of charge, visit our Electronic mailing lists page.

What's new for 2006?

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Chapter 1 - General information

This chapter has general information for all businesses. It also has information of specific interest to partnerships.

Business and business income

A business is an activity that you intend to carry on for profit and there is evidence to support that intention. A business includes:

• a profession;
• a calling;
• a trade;
• a manufacture;
• an undertaking of any kind; and
• an adventure or concern in the nature of trade. For more details, see Interpretation Bulletin IT-459, Adventure or Concern in the Nature of Trade.

Business income includes income from any activity you do for profit. See "What is fishing income?" for a list of activities that could produce fishing income. Do not include employment income as business income.

You were asking?

Q.	When does a business start? Can I deduct the costs I incur before and during the start of a business?
A.	We look at each case on its own merit. Generally, we consider that a business starts whenever you start some significant activity that is a regular part of the business, or that is necessary to get the business going.

For example, suppose that you decide to open a fishing business and you buy enough equipment to start the business. We would consider this to be the starting point of your business. You can usually deduct expenses you have incurred from that date to earn income for the business. You could still deduct the expenses even if, despite all your efforts, the business wound up. On the other hand, suppose that you review several different business prospects in the hope of going into business in the fishing industry. In this case, we would not consider that your business has started, and you would be unable to deduct any of the costs you incur.

For more details about the start of a business, see Interpretation Bulletin IT-364, Commencement of Business Operations, or visit our Small and medium-size enterprises zone page.

The law allows Statistics Canada to access business information collected by the CRA. Statistics Canada can now share with provincial statistical agencies, for research and analysis purposes only, data concerning business activities carried out in their province.

How do you calculate your fishing income?

Fiscal period

You report your fishing income based on a fiscal period. A fiscal period is the time covered from the day your fishing business starts its business year to the day your fishing business ends its business year. For an existing business, the fiscal period is usually 12 months. A fiscal period cannot be longer than 12 months. However, it can be shorter than 12 months in some cases, such as when a new business starts or when a business stops.

Self-employed individuals generally have to use a December 31 year-end. If you are an eligible individual, you may be able to use an alternative method of reporting your business income that allows you to have a fiscal period that does not end on December 31. If you have a fiscal year-end that is not December 31, see Guide RC4015, Reconciliation of Business Income for Tax Purposes, to calculate the amount of fishing income to report on your 2006 income tax and benefit return. The guide includes Form T1139, Reconciliation of 2006 Business Income for Tax Purposes.

If you filed Form T1139 with your 2005 income tax and benefit return, you generally have to file one again for 2006.

Cash method

When you use this method, you:

• report income in the fiscal period you receive it; and
• deduct expenses in the fiscal period you pay them.

For special rules on prepaid expenses, see "Prepaid expenses".

If you use the cash method and receive a post-dated cheque as security for a debt and the cheque is payable before the debt is due, include the amount in your income on one of the following dates, whichever is earlier:

• the date the debt is payable; or
• the date you cash or deposit the cheque.

If you receive a post-dated cheque as an absolute payment for a debt, include the amount in income when you get the cheque. If the financial institution does not honour the cheque, you can adjust your income then.

Note
The preceding post-dated cheque rules apply to income-producing transactions, such as the sale of fish. They do not apply to transactions involving capital property, such as the sale of a boat.

When you use the cash method in a fishing business, do not include inventory when you calculate your income. However, you can include in inventory the cost of your nets and traps. We explain this in the example for Method 2 in Line 9137 - Nets and traps.

A fishing partnership can use the cash method only if all the partners agree to use it.

For more details on the cash method for fishing businesses, see Interpretation Bulletin IT-433, Farming or Fishing - Use of Cash Method.

Accrual method

When you use this method you:

• report income in the fiscal period you earn it, no matter when you receive it; and
• deduct expenses in the fiscal period you incur them, whether or not you pay them in that period.

For special rules on prepaid expenses, see "Prepaid expenses".

When you calculate your income, include the value of all inventories of fish, fish by-products, supplies, and so on. Make a list of your inventory and count it at the end of your fiscal period. Keep this list as part of your business records.

The value you give to your year-end inventory is important for calculating your income. If this is your first year of fishing, there are two methods you can use to value your inventory:

• Value your entire inventory at its fair market value (FMV). Use either the price you would pay to replace an item, or the amount you would get if you sold an item.
• Value individual items in your inventory at either their FMV, or their cost, whichever is less. Cost is the price you incur for an item, plus any expenses you incur bringing an item to your business location and putting it in a condition so that it can be used in the business. When you cannot easily value one item differently from another, you can value the items as a group.

Once you have chosen a method for valuing your inventory, you have to use that method consistently. If this is not your first year of fishing business, use the same method you used in past years to value your inventory.

The value of your inventory at the start of your 2006 fiscal period is the same as the value at the end of your 2005 fiscal period. In your first year of fishing business, you will not have an opening inventory at the start of your fiscal period.

For more details on inventories, see Interpretation Bulletin IT-473, Inventory Valuation.

Changing your method of reporting income

If you decide to change your method of reporting income from the accrual method to the cash method, use the cash method when you file your income tax and benefit return. Make sure you include a statement that shows each adjustment you had to make to your income and expenses because of the difference in methods.

If you decide to change from the cash method to the accrual method, you have to ask permission from the Director of your tax services office. Ask for this change in writing before the date you have to file your income tax and benefit return. In your letter, explain why you want to change methods.

Because there is a difference between the cash and accrual methods, the first time you file your income tax and benefit return using the accrual method, make sure you include a statement that shows each adjustment you had to make to your income and expenses.

Business records

You have to keep records of all your transactions to be able to support your income and expense claims. Therefore, your records should be complete and organized.

There are other benefits to keeping careful records:

• When you earn income from many places, good records help you identify the source of the income. Unless you keep proper records, you may be unable to prove that some income is not from your fishing business, or that it is not taxable.
• Keeping good records will remind you of expenses you can deduct when it is time to file your income tax and benefit return.
• Good records will keep you better informed about the past and present financial position of your fishing business.
• Good records can help you budget and spot trends in your fishing business, and obtain help from banks and other lenders.
• Good records can prevent problems you may run into if we audit your income tax and benefit returns.

Income records

Keep track of the gross income your fishing business earns. Gross income is your total income before you deduct expenses. Your income records should show the date, the amount, and the source of the income. Record the income whether it was payable in cash, property, or services.

Support all income entries with original documents. Original documents include sales slips for each landing, trip settlement sheets, and slips or records of sale to the public, retailers, and restaurants.

For an example of how to record your income, see "Your record books".

Expense records

Always get receipts, invoices, or other vouchers when you buy merchandise or services for your business. The receipts have to show:

• the date of the purchase;
• the name and address of the seller or supplier;
• the name and address of the purchaser; and
• a full description of the goods or services.

For an example of how to record your expenses, see "Your record books".

You were asking?

Q.	What should I do if there is no description on a receipt?
A.	When you buy something, make sure the seller describes the item on the receipt. If there is no description, write one on the receipt or in your expense journal.
Q.	What should I do if a supplier does not give me a receipt?
A.	When you buy something, ask for a receipt. However, some suppliers may not give receipts. In this case, write the information in your records. Show the name and address of the supplier, the date of your purchase, the amount you paid, and the details of the transaction.

If you plan to claim capital cost allowance (CCA), keep a record of the properties you bought and sold. This record should show who sold you a property, the cost, and the date you bought it. This information will help you calculate your CCA. For more details on CCA, see Chapter 3.

If you sell or trade a property, show the date you sold or traded it, and the amount you got from the sale or trade-in.

Your record books

Keep a record of your daily income and expenses. We do not issue record books or suggest a type of book or set of books. There are many record books and bookkeeping systems available. For example, you can use a book that has columns and separate pages for income and expenses. Keep your books, along with your receipts, duplicate deposit slips, banking statements, and cancelled cheques. Keep separate records for each business you run. If you want to keep computerized records, make sure they are clear and easy to read.

Note
Do not send your records with your income tax and benefit return. However, keep them in case we ask to see them later.

If you do not keep the necessary information and you do not have any other proof, we may have to determine your income using other methods. We may also have to reduce the expenses you deducted.

Time limits for keeping records

Depending on the situation, keep your books, records, and related vouchers for the following lengths of time:

• if you file your income tax and benefit return on time, a minimum of six years after the end of the tax year to which they relate;
• if you file your income tax and benefit return late, six years from the date you file that income tax and benefit return; and
• if you file an objection or appeal, until either the issue is settled and the time for filing any further appeal expires, or the six-year period mentioned above has expired, whichever is later.

These time limits do not apply to certain records. For more details, see Information Circular IC78-10, Books and Records Retention/Destruction.

If you want to destroy your books, records, and related vouchers before the minimum six-year period is over, you must first get written permission from the Director of your tax services office. To do this, either use Form T137, Request for Destruction of Records, or prepare your own written request.

Instalment payments

As a self-employed fisher, you may have to pay an annual instalment by December 31, 2007.

If our records indicate that you may have to pay your tax by instalments, we will send you an instalment reminder in late November showing the amount we suggest you pay.

For more information about instalment payments or instalment interest charges, see Pamphlet P110, Paying Your Income Tax by Instalments.

Dates to remember

February 28, 2007 - If you have employees, file your 2006 T4 Summary or T4A Summary. Also, give your employees their copies of the T4 or T4A slips.

March 31, 2007 - Most fishing partnerships will file a partnership information return by March 31, 2007. However, there are exceptions. See Guide T4068, Guide for the T5013 Partnership Information Return, and Information Circular IC89-5, Partnership Information Return, and its Special Release.

April 30, 2007 - Payment of any balance owing is due. You will have to file your income tax and benefit return by April 30, 2007, if the expenditures of your 2006 fishing business are primarily connected with tax shelters.

June 15, 2007 - File your 2006 income tax and benefit return if you have self-employment income, or if you are the spouse or common-law partner of someone who has such income, unless the expenditures of the business are primarily the cost or capital cost of tax shelter investments. However, you have to pay any balance owing by April 30, 2007, to avoid interest charges.

December 31, 2007 - Pay your 2007 tax instalment for income tax and Canada Pension Plan contributions.

Note
If any of the dates mentioned above falls on a Saturday, Sunday, or a statutory holiday, you have until the next business day to file your returns or make your payments.

What is a partnership?

A partnership is usually the relationship between persons who carry on a business in common with the belief that they will make a profit. You can have a partnership without a written agreement. Therefore, to determine if you are a partner, determine the type and extent of your involvement in the business. Read the laws of your province or territory to help you decide if you are a partner in a business.

When you form, change, or dissolve a partnership, consider:

• whether the relationship is a partnership;
• the special rules about capital gains or losses and the recapture of CCA that apply when you give properties to a partnership. For details on CCA, see Chapter 3;
• the rules that apply when you dissolve a partnership; and
• the rules that apply when you sell or dispose of your interest in a partnership.

Interpretation Bulletin IT-90, What is a Partnership?, gives more details about partnerships.

Reporting partnership income

A partnership does not pay tax on its income or file an income tax return. Instead, each partner files an income tax and benefit return to report his or her share of the partnership's net income or loss. The partners have to do this whether the share of income was received in cash or as a credit to a capital account in the partnership.

Goods and services tax/harmonized sales tax (GST/HST) rebate

If you are a partner in a partnership and you claim expenses on your income tax and benefit return, you may be able to obtain a rebate for any GST/HST you pay on the expenses.

The GST/HST rebate is available to you as long as you meet both of the following conditions:

• you are a partner in a GST/HST-registered partnership; and
• on your income tax and benefit return, you deduct expenses incurred to earn partnership income for which the partnership did not repay you.

We base the rebate on the amount of the expenses subject to GST/HST that you deduct on your income tax and benefit return. Examples of expenses subject to GST/HST are vehicle costs and certain business-use-of-home expenses. You can also get a GST/HST rebate for CCA you claim on certain types of property. For example, you can claim CCA for a vehicle you bought to earn partnership income if you paid GST/HST when you bought it. Use the chart "Other amounts deductible from your share of net partnership income (loss)" on page 2 of Form T2121, Statement of Fishing Activities, to claim expenses for which the partnership did not reimburse you or any other deductible amounts. For more information, see "Line 9943 - Other amounts deductible from your share of net partnership income (loss)".

For more details about the GST/HST rebate, see Guide RC4091, GST/HST Rebate for Partners, which includes Form GST370, Employee and Partner GST/HST Rebate Application.

Partnership losses

If a partnership has a loss, apply the loss carry-over rules to each partner, and not to the partnership. For example, when you complete your income tax and benefit return, combine your share of the partnership fishing losses with any other non-capital losses you have in the year. Then apply this amount against your income using the usual loss carry-over rules.

You can carry back your 2006 non-capital loss up to three years.

The carry-forward period for non-capital losses incurred in tax years ending before March 23, 2004, is seven years.

The carry-forward period for non-capital losses incurred in tax years ending after March 22, 2004, and before January 1, 2006, is 10 years.

Partnerships that have to file a partnership information return

A partnership with six or more partners at any time in the fiscal period has to file a partnership information return. A partnership with five partners or less throughout the whole fiscal period also has to file a partnership information return when one or more of its partners is another partnership. There are other situations in which you have to file a partnership information return. For more information, see Guide T4068, Guide for the T5013 Partnership Information Return.

If you are a partner in a partnership that has to file a partnership information return, you should get two copies of the T5013 slip, Statement of Partnership Income, or the T5013A slip, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses, from the partnership. If you do not receive these slips, contact the person who prepares the forms for the partnership.

On your income tax and benefit return, report the gross partnership income and your share of the net partnership income or loss. You will get these amounts from your T5013 or T5013A slips. Attach a copy of your slip to your income tax and benefit return. Do not attach the partnership's income and expense statement to your income tax and benefit return.

You may need to adjust your share of the net partnership income or loss shown on your T5013 or T5013A slips for any business expenses you incur for which the partnership did not repay you, and for any other deductible amounts. If this is your situation, see "Line 9943 - Other amounts deductible from your share of net partnership income (loss)". You may also have expenses related to the business use of your home. For more information, see "Line 9945 - Business-use-of-home expenses".

Guide T4068, Guide for the T5013 Partnership Information Return, has more details about the partnership information return.

Partnerships that do not have to file a partnership information return

Generally, a partnership does not have to file a partnership information return if it has five partners or less throughout the whole fiscal period and no partner is another partnership. For more information, see Guide T4068, Guide for the T5013 Partnership Information Return.

If you are a partner in a partnership that does not have to file a partnership information return, use the same rules to calculate the partnership's income and expenses as you would for a proprietorship. Calculate the partnership's income and expenses as if the partnership were a separate person. Some rules for capital cost allowance and eligible capital expenditures on partnership-owned property are different. We explain these rules in the sections, "Capital cost allowance (CCA)" and "Eligible capital expenditures" below.

Capital cost allowance (CCA)

A partnership can own depreciable property and claim CCA on it. As an individual partner, you cannot claim CCA on property the partnership owns.

From the capital cost of depreciable property, subtract any investment tax credit allocated to the individual partners. We consider this allocation to be made at the end of the partnership's fiscal period. You also reduce capital cost by any type of government assistance. For more details about CCA and the adjustments to capital cost, see Chapter 3.

Any taxable capital gain or recapture from the sale of property the partnership owns is included in the income of the partnership. Also, any allowable capital or terminal loss from the sale of partnership-owned property is the loss of the partnership. For more information about capital gains and losses, see Guide T4037, Capital Gains. For information about recapture and terminal losses, see "Column 5 - UCC after additions and dispositions".

Eligible capital expenditures

A partnership can own eligible capital property and deduct an annual allowance. Any income from the sale of eligible capital property the partnership owns is income of the partnership. For more details about eligible capital expenditures, see Chapter 4.

Limited partnership

A limited partnership is a partnership that gives its limited partners responsibilities similar to those given to shareholders of a corporation.

A limited partner is generally someone whose liability as a partner is limited, as opposed to that of a general partner.

Investment tax credit (ITC)

The ITC lets you subtract from the taxes you owe part of the cost of some types of property you acquired or expenditures you incurred. You may be able to claim this tax credit if, in 2006, you bought qualifying property, incurred qualified expenditures, or were allocated renounced Canadian exploration expenses. You may also be able to claim the credit if you have unused ITCs from years before 2006.

For more details about the ITC, see Form T2038(IND).

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Chapter 2 - Form T2121, Statement of Fishing Activities

Sole proprietorships

If you are a sole proprietor of a fishing business, complete all the applicable areas and lines on Form T2121.

Partnerships

The details you have to give us about your fishing activities depend on the type of your partnership. If you are a partner in a partnership that has to file a partnership information return, complete Form T2121 as follows:

• Complete the "Identification" area.
• Enter the amount shown in box 43 (or box 21 if a limited partnership) of your T5013 or T5013A slips, on line c of Form T2121.
• Complete the "Other amounts deductible from your share of net partnership income (loss)" chart to claim any expenses for which the partnership did not reimburse you, or other amounts you may be able to deduct. Also, complete the "Calculation of business-use-of-home expenses" chart if it applies to you.
• Enter your share of the net income or loss from the fishing business on line 9946, "Your net income (loss)". If you did not make any adjustments to the amount in box 43 (or box 21 if a limited partnership) of your T5013 or T5013A slips, the amount you enter on line 9946 will be the same as the amount you entered on line c.

If you are a partner in a partnership that does not have to file a partnership information return, complete Form T2121 as follows:

• Complete the "Identification" area.
• Complete the "Income" section to report the business income for the partnership.
• Complete the "Expenses" section to report the business part of expenses for the partnership.
• Complete the "Other amounts deductible from your share of net partnership income (loss)" chart to claim any expenses for which the partnership did not reimburse you, or any other amounts you may be able to deduct. Also, complete the "Calculation of business-use-of-home expenses" chart if it applies to you.
• Complete the "Details of other partners" chart.

To see if your partnership has to file a partnership information return, read "Partnerships that have to file a partnership information return". Later in this chapter, as well as in Chapter 3, we explain how to complete each line on Form T2121.

Identification area

Complete all the lines that apply to your fishing business.

Indicate the period your fishing business year covered, which is your fiscal period. For an explanation of fiscal period, see "Fiscal period".

Enter the name and the vessel registration number (VRN) given by Fisheries and Oceans Canada of your boat. If your boat has no formal name, enter the VRN only.

Indicate the main species you caught or fished for in your fishing business.

Enter the industry code that best describes your fishing activity. The following is a list of codes that apply to fishing activities:

114123	Salt water fishing - Boat owners with crewshares
114133	Salt water fishing - Boat owners without crewshares
114143	Salt water fishing - Sharesman
114124	Inland fishing - Boat owners with crewshares
114134	Inland fishing - Boat owners without crewshares
114144	Inland fishing - Sharesman
112510	Animal aquaculture

If you did not prepare your Form T2121, enter the name and address of the person or the firm that prepared it for you.

If your Form T2121 is for a fishing partnership, enter the partnership filer identification number, if you have one, and identify your percentage of the partnership.

Enter your 15-digit Business Number in the appropriate area.

If you have a tax shelter, enter the identification number on the appropriate line. If you are claiming a deduction or losses for 2006, attach to your income tax and benefit return any applicable T5003, Statement of Tax Shelter Information and T5013A, Statement of Partnership Income for Tax Shelters and Renounced Resource Expenses, slips and a completed Form T5004, Claim for Tax Shelter Loss or Deduction, Gift and Donation Tax Credit, or Political Donation Tax Credit. For more information on tax shelters, visit our Tax shelters page.

Fishing income

This section explains how to complete the "Income" area on Form T2121.

T4 slip, Statement of Remuneration Paid

Starting in January 2007, a fisher's income must be reported on a T4 slip, as we no longer produce or accept the T4F slip or T4F Summary. If you employ fishers, see Guide RC4120, Filing the T4 Slip and Summary.

As a fisher, you may have received a T4 slip that shows your fishing income. Since your T4 slip may not show all your fishing income for the year, you should keep a detailed record of all your fishing income. Enter on Form T2121 the income you received in your 2006 fiscal period.

Your T4 slip also shows the amount of income tax that has been deducted from your fishing income for the calendar year.

However, if your fiscal period ended on a date other than December 31, enter on line 437 of your income tax and benefit return one of these amounts:

• the total tax deducted for the year, as shown on your T4 slip; or
• the part of the tax deducted for your 2006 fiscal period (in 2007, you claim the amount that remains).

In either case, include your T4 slip with your 2006 income tax and benefit return.

If you are claiming income tax that was deducted from a 2005 T4 or T4F slip, attach a note to your 2006 income tax and benefit return telling us you are doing this.

You can choose to have tax deducted at the rate of 20% on an amount you will receive from a catch. To do this, complete Form TD3F, Fisher's Election for Tax Deductions at Source, which you and the buyer of the catch or the designated employer have to sign.

Sale of fish

Include all amounts you received from the sale of fish, lobster, scallops, and so on. If you sell on the high seas, report the amount you received in Canadian dollars. Use the exchange rate in effect at the time you sold the fish. If you sell at various times in the year, use an average rate.

Other marine products

Include all amounts you received from the sale of Irish moss, herring scales, herring roe, seal meat and flippers, seaweed, kelp, roe on kelp, and so on.

Grants, credits, and rebates

You should subtract from the applicable expense any grant, credit, or rebate you received, and enter the net figure on the appropriate line on Form T2121. If you cannot apply the grant, credit, or rebate you received to reduce a particular expense, include the total amount on this line.

For example, if you have received the GST/HST input tax credit for your fishing expenses, reduce the amount of the expenses by the amount of the credit.

If the grant, credit, or rebate is for a depreciable asset, subtract the amount you received from the asset's capital cost. This might affect the amount of CCA you can claim for that asset. For information about CCA, see Chapter 3.

If the asset qualifies for the investment tax credit, this reduction to the capital cost will also affect your claim. For details, see Form T2038(IND), Investment Tax Credit (Individuals).

Also include on this line any bonuses you received from fishing boat owners and buyers.

If you were a partner in a GST/HST registered partnership, you may also receive a GST/HST rebate. We pay this rebate on the GST/HST expenses you incur to earn partnership income for which the partnership did not repay you. We base the rebate on the amount of expenses to which GST/HST applies that you deducted on your income tax and benefit return. Expenses include vehicle costs, meals, entertainment, and certain business-use-of-home expenses. You may also have received a GST/HST rebate for CCA you claimed on a vehicle you bought to earn partnership income.

If you think you may be eligible for this GST/HST rebate, see Guide RC4091, GST/HST Rebate for Partners, which includes Form GST370, Employee and Partner GST/HST Rebate Application. Complete Form GST370 and attach it to your income tax and benefit return.

Subsidies

Include the income you received during your 2006 fiscal period from all fishing subsidy programs made to fishers under federal, provincial, territorial, municipal, or joint programs.

Compensation for loss of fishing income or property

You may have received insurance proceeds for property that was lost or destroyed. If you previously deducted the cost of the property as an expense, include the amount of the proceeds in your fishing income. This also includes any amounts you may have received for lost or destroyed nets and traps you included in inventory. Also include on this line compensation you received for loss of income, such as payments from the Fisheries Restructuring and Adjustment Program.

Compensation for lost or destroyed capital property, such as a fishing boat, equipment, or nets and traps you capitalize, are proceeds of disposition for the property. Therefore, you have to deduct the proceeds from the undepreciated capital cost of the class to which the property belongs. See Chapter 3 for details.

Other income

You may have other types of fishing income that are not listed on Form T2121. Show this income on the "Other income" line. Below, we have listed some of the more common types of other income.

Patronage dividends

Include all patronage dividends (other than those for consumer goods or services) in your income in the year you received them. We consider a patronage dividend that is a share or a certificate of indebtedness to be income when you received it.

Paying debts with part of a catch

You may have bought property or paid off a debt with fish or other catch instead of money. In this case, include in your income the fair market value (FMV) of the fish or other catch.

You may have paid off a business expense with fish or other catch. If you did this, include in income the FMV of the fish or other catch. Then you can deduct as an expense the FMV of that fish or other catch.

Sale of property

The tax treatment of the proceeds of disposition from a sale depends on the type of property you sold.

For instance, if you sold capital property, you may have to include in your income a capital gain and a recapture of CCA, or you may be able to deduct a terminal loss. See Chapter 3 for more information.

On the other hand, you may have sold an item that you deducted as an expense, such as small tools. In this case, include the proceeds of disposition for the tools in your income.

However, if you sold a fishing boat and the sale price includes other items such as a fishing licence, nets, or traps, you have to divide the proceeds of disposition among the items. You and the buyer should try to reach an agreement on the price for each item.

Income from related activities

Report other income you received that is not on your T4 slip or elsewhere on Form T2121. Some examples of other income are incomes you received working as a captain, engineer, first mate, or cook.

An owner may have paid you wages and let you keep part of a catch. In this case, include the wages on the appropriate line of your income tax and benefit return and the balance received as "Other income" on Form T2121.

If you are a resident of Canada and fish on a foreign vessel, include in your income any amount you received as wages or as your share of the catch. Report the amount you received in Canadian dollars.

Sharesperson income

Report the income you received as a sharesperson. Also, write down the name of the fishing boat and captain.

Line 8299 - Gross income

Gross fishing income is your total fishing income before you deduct expenses. Enter your gross fishing income on line 170 of your income tax and benefit return.

Fishing expenses

Who can claim expenses?

If you are a self-employed fisher, you can deduct certain amounts you spent to earn fishing income. See "Is this guide for you?" for the definition of self-employed fisher. If you use the cash method of reporting income and expenses, you can only deduct expenses that you paid in the year. If you are using the accrual method, you can deduct expenses incurred during the year, whether you paid them or not. There are special rules for deducting prepaid expenses. These rules are explained under "Prepaid expenses".

Note
When you claim the GST/HST you paid on your fishing expenses as an input tax credit, reduce the amounts of the expenses to which the credit relates by the amount of the input tax credit. Do this when the GST/HST for which you are claiming the input tax credit was paid or became payable.

"Enter business part only", on Form T2121, means that you cannot include any of the following as part of your expenses:

• salary, wages, or drawings paid to yourself or your partners;
• cost of saleable goods or services you, your family, or your partners and their families used;
• donations to charities and political contributions;
• interest and penalties you paid on your income tax;
• life insurance premiums;
• the part of any expenses that can be attributed to your personal use of property or services of your fishing business; and
• most fines and penalties imposed after March 22, 2004, under a law of Canada or a province or foreign country.

Fishing boat owners

As a fishing boat owner, you can deduct all the expenses you incurred for each trip. This includes the expenses to calculate the crewshares.

You may be able to deduct expenses when you used your home for business purposes. You may also be able to deduct the cost to travel between your home and the fishing boat. However, to deduct either of these expenses, you have to meet certain conditions. We explain these conditions on "Line 9945 - Business-use-of-home expenses" and on "Line 9281 - Motor vehicle expenses".

You can also deduct other expenses you paid to earn fishing income, as well as CCA on property you owned and used to earn fishing income. We explain CCA in Chapter 3.

Captains of fishing boats

As the captain of a fishing boat, you can deduct expenses for which the owner did not pay or reimburse you. These expenses include the cost of personal navigation aids and rubber gear. You can also deduct motor vehicle expenses you paid to transport crew members and to get supplies and parts to use on the boat. You may be able to deduct business-use-of-home expenses and the cost of travel between your home and the fishing boat if you meet certain conditions. For more information, see "Line 9281 - Motor vehicle expenses" and "Line 9945 - Business-use-of-home expenses".

Sharespeople

As a sharesperson, your income is the amount you received after you deducted all trip expenses from the sale of the catch. Therefore, you can only deduct the expenses you paid for rubber gear, gloves, and knives you used on the fishing boat. You cannot deduct the cost to travel between your home and the fishing boat since we consider these expenses to be personal.

Note
Fishing boat owners, captains, and sharespeople cannot duplicate expenses. For example, if the owner deducted expenses for fuel, food, and ice, a captain cannot deduct the same expenses.

Use of a fishing boat mainly for personal use

You may have used a fishing boat mainly for personal use, but sometimes caught a small amount of fish to sell. In this case, you can deduct expenses and CCA. However, the amount you deduct cannot be more than your income from the catch.

Prepaid expenses

A prepaid expense is the cost of a service you paid for ahead of time. For example, insurance, property taxes, and rent would be prepaid expenses if you paid them in one year, but did not receive the benefits until the next year.

If you use the accrual method to determine your fishing income, you can deduct the part of the prepaid expenses that applies to the year you receive the benefit.

If you use the cash method for reporting your fishing income, you cannot deduct a prepaid expense amount (other than for inventory) for a tax year that is two or more years after the year you paid the expense. However, you can deduct the part of an amount you paid in a previous year for benefits received in the current tax year. These amounts are deductible as long as you have not already deducted them.

For example, if you paid $600 for a three-year service contract for office equipment in 2006, you can deduct $400 in 2006. This represents the part of the expense that applies to 2006 and 2007. On your 2008 income tax and benefit return, you could then deduct the balance of $200 for the part of the prepaid service contract that applies to 2008.

Grants, credits, and rebates

Subtract, from the applicable expense, any grant, credit, or rebate you received. Enter the net figure on the appropriate line of Form T2121.

If the grant, credit, or rebate is for a depreciable asset, subtract the amount you received from the asset's capital cost. This might affect the amount of CCA you can claim for that asset. For information about CCA, see Chapter 3.

If the asset qualifies for the investment tax credit, this reduction to the capital cost will also affect your claim. For details, see Form T2038(IND), Investment Tax Credit (Individuals).

If you cannot apply the grant, credit, or rebate you received to reduce a particular expense or to reduce an asset's capital cost, include the total on the line "Grants, credits, and rebates" in the income area on Form T2121.

Line 9138 - Bait, ice, salt

Deduct the amount you paid for bait, ice, and salt used for your fishing business.

Line 9062 - Crew shares

Enter the total amount of each crew member's share of the catch. You will find these amounts on the trip settlement sheets.

Line 9224 - Fuel and oil costs

Deduct the amounts you paid for fuel and oil for your fishing boat and equipment. If you used a car or truck for your fishing business, see "Line 9281 - Motor vehicle expenses". The cost of fuel related to business use of work space in your home has to be claimed on line 9945, "Business-use-of-home expenses".

Line 9136 - Gear

Deduct the amount you paid for gear. This includes knives, small assorted supplies, gloves, and rubber or oilskin clothing you used in your fishing business.

Line 8690 - Insurance

Deduct the premiums you paid to insure your fishing boat and equipment.

In most cases, you cannot deduct your life insurance premiums or amounts you paid to insure personal property such as your home. However, if you used the property for personal use and for your fishing business, you can deduct the business part of these costs. For more details, see "Line 9281 - Motor vehicle expenses" and "Line 9945 - Business-use-of-home expenses". The insurance costs related to business use of work space in your home have to be claimed on line 9945.

Line 8710 - Interest

Enter the total interest you paid on money you borrowed to earn fishing income, such as interest on a loan you used to buy a fishing boat, engine, or gear. However, do not include the interest on money you borrowed to buy a motor vehicle you used in your fishing business. For more information on where to include this amount, see "Line 9281 - Motor vehicle expenses".

Do not deduct the principal part of loan or mortgage payments. Also, do not deduct interest on money you borrowed for personal purposes or to pay overdue income taxes.

The mortgage interest related to business use of work space in your home has to be claimed on line 9945, "Business-use-of-home expenses".

Line 8523 - Food

The maximum amount you can claim for food, beverages, and entertainment expenses is 50% of either the amount you incur or an amount that is reasonable in the circumstances, whichever is less. However, special rules can affect your claim for meals.

Claim the total amount you paid for food you stocked on your boat to feed your crew when you fished offshore.

Often, inshore fishers do not stock food. Instead, they bring meals from home for their crew because the trips are short (leave home early in the morning and come back late in the afternoon). You can deduct the cost of these meals as long as the meals were a taxable benefit to your crew.

In some cases, you can deduct the cost of meals even though they were not taxable benefits. You can do this if your boat was at sea for 36 hours or more and the meals you gave to your crew were not taxable benefits. Also, if you gave meals to your sharespeople, generally the meals you gave them are not taxable benefits because we do not consider sharespeople to be employees. The 50% rule applies to all self-employed sharespeople, however, they may be limited by the restriction noted above.

If you need more details about taxable benefits, see Guide T4130, Taxable Benefits. Also see Interpretation Bulletin IT-91, Employment at Special Work Sites or Remote Work Locations.

Line 8760 - Licences

Enter the total cost to renew your annual licences. If you bought a licence from another fisher, you can only deduct part of the cost each year. For details on eligible capital expenditures, see Chapter 4.

If you bought a fishing boat and the price included the cost of a licence, you need to know what part of the price was for the licence and what part was for the boat. Try to agree on these amounts with the seller. See the example for more information.

Line 9281 - Motor vehicle expenses

Enter the total of all your motor vehicle expenses, excluding CCA. See line 9936 for details on CCA.

Complete "Chart A - Motor Vehicle Expenses," on page 4 of Form T2121 to help you calculate the amount of motor vehicle expenses you can deduct.

The kind of vehicle you own can affect the expenses you can deduct. For income tax purposes, there are three types of vehicles:

• motor vehicles;
• automobiles; and
• passenger vehicles.

If you own or lease a passenger vehicle, there may be a limit on the amounts you can deduct for CCA, interest, and leasing costs. We explain the CCA limits under line 9936, and the interest and leasing costs limits below.

A motor vehicle is an automotive vehicle designed or adapted for use on streets or highways, but does not include a trolley bus or a vehicle designed or adapted to be operated only on rails.

An automobile is a motor vehicle designed or adapted primarily to carry people on streets and highways, and seats no more than a driver and eight passengers. However, an automobile does not include:

• a van, pick-up truck, or similar vehicle that seats no more than the driver and two passengers and that in the tax year you bought or leased it, was used more than 50% to transport goods or equipment to earn income;
• a van, pick-up truck, or similar vehicle that, in the tax year you bought or leased it, was used 90% or more to transport goods, equipment, or passengers to earn income; and
• a pick-up truck that, in the tax year you bought or leased it, was used more than 50% to transport goods, equipment, or passengers while earning or producing income at a remote work location or at a special work site that is at least 30 kilometres from the nearest community having a population of at least 40,000 persons.

A passenger vehicle is any automobile you bought after June 17, 1987, or that you leased under an agreement you entered into, or that was extended or renewed, after June 17, 1987.

Business use of a motor vehicle

If you use your motor vehicle for personal and business reasons, you can deduct the part of your expenses that was for fishing business use. Fishing business use includes trips to pick up parts or supplies for your boat, and to deliver fish to markets. It also includes driving to and from the fishing boat if your home is your main place of business. To determine if you use your home as your main place of business, see "Line 9945 - Business-use-of-home expenses".

Keep a record of the total kilometres you drove and the kilometres you drove for business use. Also, keep track of what it costs you to run and maintain the motor vehicle for the year.

Interest on the money you borrow for a passenger vehicle

If you use a passenger vehicle to earn fishing income, there is a limit on the amount of interest you can deduct.

Whether you use the cash or accrual method to determine your income, complete "Chart B - Available interest expenses for passenger vehicles," on page 4 of Form T2121 to calculate the amount of interest you can deduct. If you use your passenger vehicle for both personal and business use, complete the chart before you determine how much interest you can deduct as an expense.

Leasing costs for a passenger vehicle

When you use a passenger vehicle to earn income, there is a limit on the amount of the leasing costs you can deduct. To calculate your eligible leasing costs, complete "Chart C - Eligible leasing costs for passenger vehicles" on page 4 of Form T2121.

The lease agreement for your passenger vehicle may include items such as insurance, maintenance, and taxes. In this case, include them as part of the lease charges on line 1 when you complete Chart C.

Note
Generally, leases include taxes (GST and PST, or HST), but not items such as insurance and maintenance. You have to pay these amounts separately. Include the taxes on line 1 when you complete Chart C, and list the items such as insurance and maintenance on the appropriate lines of "Chart A - Motor vehicle expenses."

For more information, see Guide T4044, Employment Expenses.

The following example will show you how to calculate your eligible leasing costs. Use Chart C on page 4 of Form T2121 to help you complete the following example.

Repayments and imputed interest

When you lease a passenger vehicle, you may have a repayment owing to you, or you may have imputed interest. If this is your situation, you will not be able to use the chart.

Imputed interest is interest that would be owing to you if interest were paid on money deposited to lease a passenger vehicle. You calculate imputed interest for leasing costs on a passenger vehicle only if all the following apply:

• one or more deposits were made for the leased passenger vehicle;
• the deposit is, or the deposits are, refundable; and
• the total of the deposits or the deposits is more than $1,000.

For more information, see Interpretation Bulletin IT-521, Motor Vehicle Expenses Claimed by Self Employed Individuals.

Joint ownership of a passenger vehicle

If you and someone else own or lease the same passenger vehicle, the limits on CCA, interest, and leasing costs still apply. The amount you can deduct as joint owners cannot be more than the amount that one person owning or leasing the passenger vehicle could deduct. Each of you has to claim expenses in proportion to your share of the passenger vehicle.

More than one vehicle

If you use more than one motor vehicle for your fishing business, keep a separate record that shows the kilometres you drive for your fishing business, the total kilometres you drive, and the cost to run and keep each vehicle. Calculate each vehicle's expenses separately.

For more information, see Interpretation Bulletin IT-521, Motor Vehicle Expenses Claimed by Self-Employed Individuals.

Line 8810 - Office expenses

Enter the total amount of office expenses, such as stationery, invoices, receipt and accounting books, and any other operating supplies.

Line 9137 - Nets and traps

Nets and traps include lines, hooks, buoys, anchors, and radar reflectors.

Generally, you cannot deduct the entire cost of nets and traps you bought in the year. Instead, there are two methods you can use to deduct these costs.

Method 1 - Capital cost allowance (CCA) method

Capitalize the cost of nets and traps and claim CCA. See Chapter 3 for details on CCA.

Method 2 - Inventory method

Include in inventory the cost of nets and traps and deduct the loss in value, as shown in the following example:

If you just started fishing, choose one of the two methods. If you have been fishing for several years and each year you claim the cost of replacing nets and traps, you can keep on doing so. However, you can choose to change to either the CCA or the inventory method. If you choose to do this in 2006, the value of nets and traps on hand at the end of 2005 will be zero since you have deducted their value in previous years.

You can change from the inventory method to the CCA method. However, you cannot change from the CCA method to the inventory method.

Line 8860 - Legal, accounting, and other professional fees

Enter the total of all your allowable business-related legal, accounting, or professional fees. Also, you can deduct any accounting or bookkeeping fees you incurred to have someone keep your books and records and prepare your income tax and benefit return and GST/HST return.

If you paid accounting and legal fees to file an appeal against your assessment for income tax, Canada Pension Plan or Quebec Pension Plan contributions, or Employment Insurance premiums, deduct these fees on line 232 of your income tax and benefit return. You should subtract any reimbursement from the applicable fees and enter the result on line 232.

If you received a reimbursement in 2006 for these types of fees, which you deducted in a previous year, enter the amount of the reimbursement on line 130 of your income tax and benefit return.

Do not deduct any legal or other fees you paid to buy property such as a fishing boat and equipment. Add these fees to the capital cost of the property.

For more details, see Interpretation Bulletin IT-99, Legal and Accounting Fees.

Line 9060 - Salaries, wages, and benefits

Enter the total amount of gross wages you paid your crew. This includes wages you paid to individuals for repairing and painting the boat, cutting bait, baiting the trawl, shucking scallops, handling cargo, standing watch, and so on.

As the employer, you also include in this total your share of Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, Employment Insurance (EI) premiums, and provincial parental insurance plan premiums. Do not deduct the amounts you withheld from your employees' remuneration, because they are already deducted in the amount you claimed as wages.

Keep a detailed record of the amounts you paid to each employee along with the employee's name, address, and social insurance number.

You can deduct the wages you paid to your child as long as you meet all these conditions:

• you paid the salary in cash or in kind;
• the work your child did was necessary for you to earn fishing income; and
• the salary is reasonable considering your child's age and the amount you would have paid someone else for the same work.

Keep documents to support the salary you paid to your child. If you paid your child by cheque, keep the cancelled cheque. If you paid cash, have your child sign a receipt.

Following the same rules, you can deduct wages you paid to your spouse or common-law partner if your spouse or common-law partner is not a partner in your fishing business. If you were a partner in a partnership that employed your spouse or common-law partner, the partnership can deduct your spouse or common-law partner's wages if the expense was incurred to earn fishing income and the wages were reasonable.

You have to complete a T4 Summary as well as the related T4 slips. On the T4 slips, report the salary, wages, and taxable benefits you paid to your employees, children, or spouse or common-law partner. Also show the amounts of deductions you withheld.

For details, see Guide RC4120, Filing the T4 Slip and Summary.

Line 8963 - Repairs

Fishing boat

Enter the total amount you paid for the general repairs you needed to keep your fishing boat seaworthy.

The structural improvements and additions you make to your fishing boat are capital expenditures. You have to add these expenditures to the cost of the boat. This will affect your CCA claim on the boat. For details on CCA, see Chapter 3.

If you need more details about capital expenditures, see Interpretation Bulletin IT-128, Capital Cost Allowance - Depreciable Property.

Engine

Enter the total amount you paid for all general engine repairs. You can also deduct the cost of an overhaul. However, if you replaced an engine, it is a capital expenditure. Therefore, add the expenditure to the cost of the boat. This will affect the CCA on the boat. For details on CCA, see Chapter 3.

Electrical equipment

Deduct the amount you pay for repairs to a loran, sounder, radar, ship-to-shore radio, fish finder, and so on.

Line 9270 - Other expenses

You may have other fishing expenses that are not shown on Form T2121. In this case, enter these amounts on this line. We cover some common other expenses below.

Disability-related modifications made to a building

Outlays and expenses for eligible disability-related modifications made to a building can be considered current expenses. You do not have to add them to the capital cost of your building. You can also deduct expenses you paid to install or get disability-related modifications including changes you make to accommodate wheelchairs.

Leasing costs

Deduct the lease payments you incurred in the year for property used in your fishing business. If you leased a passenger vehicle, see "Line 9281 - Motor vehicle expenses".

If you entered a lease agreement after April 26, 1989, you can choose to treat your lease payments as combined payments of principal and interest. However, you and the person you are leasing from have to agree to treat the payments this way. In this case, we consider that you:

• bought the property rather than leased it; and
• borrowed an amount equal to the fair market value (FMV) of the leased property.

You can deduct the interest part of the payment as an expense. You can also claim CCA on the property. For details on CCA, see Chapter 3.

You can make this choice as long as the property qualifies and the total FMV of all the property subject to the lease is more than $25,000. For example, a fishing boat you leased with an FMV of $35,000 qualifies. However, office furniture and automobiles often do not.

To treat your lease this way, complete one of the following forms and file it with your income tax and benefit return for the year you make the lease agreement:

• T2145, Election in Respect of the Leasing of Property; or
• T2146, Election in Respect of Assigned Leases or Subleased Property.

Advertising

Deduct the cost of advertising you incur for your fishing business.

Telephone

Do not deduct the basic monthly rate of your home telephone. However, you can deduct any long-distance telephone calls you made for your fishing business.

If you have a separate telephone to use in your fishing business and you used it for business calls only, you can deduct its basic monthly rate.

Computer and other equipment leasing costs

If you lease computers, cellular telephones, fax machines, and other equipment, you can deduct the percentage of the lease costs that reasonably relates to earning your fishing income. You can also deduct the percentage of air-time expenses for a cellular telephone that reasonably relates to earning your fishing income.

If you buy a computer, cellular telephone, fax machine, or other such equipment, you cannot deduct the cost. You can deduct CCA and interest you paid on money you borrowed to buy this equipment that reasonably relates to earning your fishing income. For more information on CCA, see Chapter 3.

Freight and trucking

Deduct the expenses you incurred for delivery, shipping, trucking, or other distribution costs related to your fishing business.

Private health service plan (PHSP)

You can deduct premiums paid to a private health service plan (PHSP) if you meet the following conditions:

• your net income from self-employment (excluding losses and PHSP deductions) for the current or previous year is more than 50% of your total income*, or your income from sources other than self-employment** is $10,000 or less, for the current or previous year;
• you are actively engaged in your fishing business on a regular and continuous basis, individually or as a partner; and
• the premiums are paid to insure yourself, your spouse or common-law partner, or any member of your household.

* For the purposes of this claim, calculate your total income as follows:

• the amount from line 150 of your 2005 or 2006 income tax and benefit return, whichever applies, before you deduct any amounts for PHSPs; minus
• the amounts you entered on lines 207, 212, 217, 221, 229, 231, and 232 on your 2005 or 2006 income tax and benefit return, whichever apply.

** For the purposes of this claim, calculate your income from sources other than self-employment as follows:

• the amount from line 150 of your 2005 or 2006 income tax and benefit return, whichever applies, before you deduct any amounts for PHSPs; minus
• the amounts you entered on lines 135, 137, 139, 141, 143 (excluding business losses which reduced the net amount reported on those lines), 207, 212, 217, 221, 229, 231, and 232 on your 2005 or 2006 income tax and benefit return, whichever apply.

You cannot claim a deduction for PHSP premiums if another person deducted the amount, or if you or anyone else claimed the premiums as a medical expense. For your premiums to be deductible, your PHSP coverage has to be paid under a contract with one of the following:

• an insurance company;
• a trust company;
• a person or partnership in the business of administering PHSPs;
• a tax-exempt trade union of which you or the majority of your employees are members; or
• a tax-exempt business organization or a tax-exempt professional organization of which you are a member.

For more information on PHSP, see Interpretation Bulletin IT-339, Meaning of Private Health Services Plan (1988 and subsequent taxation years).

Note
In a cost-plus plan, the plan will only qualify as a PHSP if there is at least one employee. For example, a cost-plus plan that provides coverage for a sole proprietor and household members who are not employees will not qualify as a PHSP since it is not an insurance plan.

Definitions

For the purposes of this claim, the following definitions apply:

• Qualified employees are arm's length, full-time employees who have three months service since they last became employed with a business carried on by you, with a business in which you are a majority interest partner, or with a business carried on by a corporation affiliated with you. Temporary or seasonal workers are not qualified employees.
• Arm's length employees are generally employees who are not related to you and who are not carrying on business with you, for example, as your partners. See the definition of "Non-arm's length transactions".
• Insurable persons are people to whom coverage is extended and who are either:
  • qualified employees;
  • people who would be qualified employees if they had worked for you for three months; or
  • people carrying on your business (including yourself and your partners).

How to calculate your maximum deduction for PHSPs

The following sections explain how to calculate your maximum PHSP deduction based on whether you had employees and whether you insured them throughout the year or part of the year. Find the section that describes your situation.

If you did not have any employees throughout 2006

Your PHSP deduction is restricted by a dollar limit on an annual basis. The limit is a maximum of:

• $1,500 for yourself;
• $1,500 for your spouse or common-law partner and household members who were 18 years of age or older at the start of the period when they were insured; and
• $750 for household members under the age of 18 at the start of the period.

The maximum deduction is also limited by the number of days the person was insured. Calculate your allowable maximum for the year by using the following formula:

(A ÷ 365) × (B + C), where:

A	is the number of days during the period of the year when you insured yourself and household members, if applicable, but insured less than 50% of your employees;
B	equals $1,500 × the number of household members 18 and over insured during that period; and
C	equals $750 × the number of household members under the age of 18 insured during that period.

If you had employees throughout 2006

If you had at least one qualified employee throughout all of 2006 and at least 50% of the insurable persons in your business were qualified employees, your claim for PHSP premiums is limited in a different way. Your limit is based on the lowest cost of equivalent coverage for each of your qualified employees. See the definition of qualified employees.

Use the following steps to calculate your maximum allowable claim for the PHSP premiums paid for yourself, your spouse or common-law partner, and your household members.

For each of your qualified employees, do the following calculation:

X × Y = Z, where:

X	equals the amount you would pay to provide yourself, your spouse or common-law partner, and your household members with coverage equivalent to that provided to a particular employee, his or her spouse or common-law partner, and household members;
Y	equals the percentage of the premium you pay for that particular employee; and
Z	equals your limit based on that particular employee.

If you had more than one qualified employee, you have to do the X × Y = Z calculation for each employee. Your limit is then the least amount you calculate for each employee.

Note
If you have a qualified employee with no coverage, you cannot claim your PHSP premiums as a deduction from self-employment income. However, you may be able to claim them as medical expenses.

If you had employees throughout 2006, but the number of arm's length employees you insured was less than 50% of all the insurable persons in your business, your maximum allowable deduction is the lesser of the following two amounts:

Amount 1

Determine this amount by using the following formula:

(A ÷ 365) × (B + C), where:

A	is the number of days during the period of the year when you insured yourself and household members, if applicable, but insured less than 50% of your employees;
B	equals $1,500 × the number of household members 18 and over insured during that period; and
C	equals $750 × the number of household members under the age of 18 insured during that period.

Amount 2

If you had at least one qualified employee, amount 2 is the lowest cost of equivalent coverage for each qualified employee, calculated by using the X × Y = Z formula. If you did not have at least one qualified employee, the limit in amount 1 will apply.

If you had employees for part of the year

For the part of the year when you had at least one qualified employee and your insurable arm's length employees represented at least 50% of all the insurable persons in your business, calculate your limit for that period the same way as in the previous section "If you had employees throughout 2006".

For the remainder of the year when you had no employees or when your insurable arm's length employees represented less than 50% of all of the insurable persons in your business, your deduction limit for that remaining period is the lesser of the following two amounts:

Amount 1

Determine this amount by using the following formula:

(A ÷ 365) × (B + C), where:

A	is the number of days during the period of the year when you insured yourself and household members, if applicable, but insured less than 50% of your employees;
B	equals $1,500 × the number of household members 18 and over insured during that period; and
C	equals $750 × the number of household members under the age of 18 insured during that period.

Amount 2

If you had at least one qualified employee, amount 2 is the lowest cost of equivalent coverage for each qualified employee, calculated by using the X × Y = Z formula. If you did not have at least one qualified employee, the amount 1 limit will apply.

Undeducted premiums

If you deduct only a part of your PHSP premium at line 9270, and you paid the premium in the year, you can include the undeducted balance in the calculation of your non-refundable medical expense tax credit. For details, see "Line 330" in the General Income Tax and Benefit Guide.

Line 9936 - Capital cost allowance (CCA)

Enter the total amount of CCA you calculate on all the eligible assets you used in your fishing operation. To calculate your CCA claim, use the charts on pages 2 and 3 of Form T2121. See Chapter 3 for details on how to complete these charts.

Line 9935 - Allowance on eligible capital property

We explain how to determine this allowance in Chapter 4.

Line 9369 - Net income (loss) before adjustments

Enter on this line the gross income minus the deductible expenses. If you are a partner in a partnership, this amount is the net fishing income of all partners. If you have a loss, enter the amount in brackets.

On line c, enter your share of line 9369. This is the amount left after you subtract the amounts the other partners are responsible for reporting as specified in the partnership agreement. In the chart "Details of other partners" on page 3 of Form T2121, show the full names and addresses of the other partners, as well as a breakdown of their shares of the income and their percentages of the partnership.

Line 9943 - Other amounts deductible from your share of net partnership income (loss)

Enter the total of any extra expenses you incurred to earn your share of partnership income for which the partnership did not repay you. For instance, you may use your automobile for the partnership business. When you do this, you can deduct part of your motor vehicle expenses. However, you must not have claimed these expenses anywhere else on Form T2121.

Complete the chart "Other amounts deductible from your share of the net partnership income (loss)" on page 2 of Form T2121 to list these amounts.

Line 9945 - Business-use-of-home expenses

You can deduct expenses for using a work space in your home for business, as long as you meet one of these conditions:

• it is your main place of business; or
• you use the space only to earn your fishing business income, and you use it on a regular and ongoing basis to meet your customers.

You can deduct part of your maintenance costs, such as heating, home insurance, electricity, and cleaning materials. You can also deduct part of your property taxes, mortgage interest, and CCA. To calculate the part you can deduct, use a reasonable basis, such as the area of the work space divided by the total area of your home.

If you use part of your home for both your business and personal living, calculate how many hours in the day you use the rooms for your business, then divide that amount by 24 hours. Multiply the result by the business part of your total home expenses. This will give you the household cost you can deduct.

If you run the business for only part of the week or year, reduce your claim accordingly.

The capital gain and recapture rules will apply if you deduct CCA on the business-use part of your home and you later sell your home. For details on recapture of CCA, see Chapter 3. For information on capital gains, see Guide T4037, Capital Gains.

If you rent your home, you can deduct the part of the rent and any expenses you incur that relate to the work space.

The amount you can deduct for business-use-of-home expenses cannot be more than your net income from the fishing business before you deduct these expenses. In other words, you cannot use these expenses to increase or create a business loss.

You can deduct the lesser of the following amounts:

• any amount you carry forward from your 2005 fiscal period, plus the business-use-of-home expenses you incur in your 2006 fiscal period; or
• the income amount on line e on page 1 of Form T2121.

In your next fiscal period, you can use any expense you could not deduct in your 2006 fiscal period, as long as you meet one of the two previous conditions. You also use the same rules.

To calculate your allowable claim for business-use-of-home expenses, use the chart "Calculation of business-use-of-home expenses" on page 2 of Form T2121. The expenses you claim on line 9945 must not have been claimed elsewhere on Form T2121.

For more details, see Interpretation Bulletin IT-514, Work Space in Home Expenses.

Line 9946 - Your net income (loss)

Enter your net fishing income or loss on line 143 of your income tax and benefit return. If you have a loss, enter the amount in brackets.

Details of equity (page 2 of Form T2121)

If you are a partner in a partnership that has to file a partnership information return, do not complete this section.

Line 9931 - Total business liabilities

A liability is a debt or obligation of a business. "Total business liabilities" is the total of all amounts your fishing business owes at the end of its fiscal period. This includes:

• accounts payable;
• notes payable;
• income taxes and taxes payable;
• unpaid salaries, wages, and benefits;
• interest payable;
• deferred or unearned revenues;
• loans payable;
• mortgages payable; and
• any other outstanding balance related to the business.

Line 9932 - Drawings in 2006

A drawing is any withdrawal of cash (including salaries), other assets, or services of a business by the proprietor or partners. This includes such transactions by the proprietor or partners (or family members) as withdrawing cash for non-business use, and using business assets and services for personal use. Include the cost or value of personal use of business assets or services in your drawings for the year.

Line 9933 - Capital contributions in 2006

A capital contribution is an addition of cash or other assets to the fishing business you made during its fiscal period. This includes adding personal funds to the business account, paying business debts with personal funds, and transferring personal assets to the fishing business.

Details of other partners (page 3 of Form T2121)

If you are a partner in a partnership that does not have to file a partnership information return (see Chapter 1 for these requirements), you can complete the chart "Details of other partners" on page 3 on your Form T2121.

If you are a partner in a partnership that has to file a partnership information return, you do not have to complete this chart.

---

Chapter 3 - Capital cost allowance (CCA)

What is CCA?

You might acquire a depreciable property, such as a boat, furniture, or equipment, to use in your fishing activities. You cannot deduct the cost of the property when you calculate your net fishing income for the year. However, since these properties wear out or become outdated over time, you can deduct their cost over a period of several years. The deduction for this is called CCA.

Definitions

To calculate your CCA claim, you will need to know the meaning of the following terms.

Adjusted cost base (ACB)

The ACB is usually the cost of a property plus any expenses to acquire it, such as commissions and legal fees.

Available for use

You can usually claim CCA on a property only when it becomes available for use.

Property other than a building usually becomes available for use on whichever is earliest:

• the date you first use it to earn income;
• the second tax year after the year in which you acquired the property;
• the date it is delivered or made available to you and is capable of performing the function for which you acquired it;
• in the case of a vessel, the date when all permits, certificates, or licences needed by law are obtained; or
• the time just before you dispose of the property.

A building, or part of a building, usually becomes available for use on whichever is earliest:

• the date you start using 90% or more of the building in your business;
• the second tax year after the year in which you acquired the building; or
• the time just before you dispose of the building.

A building that you bought or are constructing, renovating, or altering usually becomes available for use on whichever is earliest:

• the date you complete the construction, renovation, or alteration;
• the date you start using 90% or more of the building in your business;
• the second tax year after the year in which you acquired the building; or
• the time just before you dispose of the building.

Capital cost

This is the amount on which you first claim CCA. The capital cost of a depreciable property is usually the total of:

• the purchase price (not including the cost of land, which is usually not depreciable - see "Land");
• the part of your legal, accounting, engineering, installation, and other fees that relates to the purchase or construction of the depreciable property (not including the part that applies to land);
• the cost of any additions or improvements you made to the depreciable property after you got it if you have not claimed these costs as a current expense; and
• soft costs (such as interest, legal and accounting fees, and property taxes) related to the period you are constructing, renovating, or altering the building if you have not claimed these costs as current expenses.

Depreciable property

This is any property on which you can claim CCA. You usually group depreciable properties into classes. For example, pumps, ice machines, and tools that cost $200 or more ($500 after May 1, 2006, as proposed) belong to Class 8. You have to base your CCA claim on a rate assigned to each class of property.

Fair market value (FMV)

FMV is generally the highest dollar value you can get for your property in an open and unrestricted market between an informed and willing buyer and an informed and willing seller who deal at arm's length with each other.

Non-arm's length transaction

A non-arm's length transaction includes a transaction between parties who are related, such as members of a family. An example of a non-arm's length transaction would be the sale of property between a husband and wife or a parent and child.

Proceeds of disposition

Proceeds of disposition generally means the sale price of a property. Usually the proceeds of disposition are the amounts you receive, or that we consider you to have received, when you dispose of your property. This could include compensation you receive for property that someone destroys, expropriates, steals, or damages. Special rules may apply if you dispose of a building for less than both its undepreciated capital cost and your capital cost. If this is the case, see "Special rules for disposing of a building in the year" for details.

For more details about proceeds of disposition, see Interpretation Bulletins IT-220, Capital Cost Allowance - Proceeds of Disposition of Depreciable Property, and its Special Release, and IT-285, Capital Cost Allowance - General Comments.

Undepreciated capital cost (UCC)

Generally, the UCC is the amount left after you deduct CCA from the capital cost of a depreciable property. The CCA you claim each year reduces the UCC of the property.

How much CCA can you claim?

Base your CCA claim on your fiscal period ending in 2006, and not the calendar year.

The CCA you can claim depends on the type of property you own and the date you got it. You have to group the depreciable property you own into classes. A rate of CCA applies to each class. We explain the most common classes of depreciable property in "Classes of depreciable property". We list most of the classes of depreciable property and the rates for each class in "Capital cost allowance (CCA) rates".

There are a few other things you should know about CCA:

• For the most part, use the declining balance method to calculate your CCA. This means that you claim CCA on the capital cost of the property minus the CCA you claimed in previous years, if any. The remaining balance declines over the years as you claim CCA.
• You do not have to claim the maximum amount of CCA in any given year. You can claim any amount you like, from zero to the maximum allowed for the year. For example, if you do not have to pay income tax for the year, you may not want to claim CCA. Claiming CCA reduces the amount of CCA available to you for future years.
• In the year you acquire a depreciable property, you can usually claim CCA only on one half of your net additions to a class. We explain this 50% rule in "Column 6 - Adjustment for current-year additions". The available-for-use rules may also affect the amount of CCA you can claim. For more information, see the definition of available for use.
• You cannot claim CCA on most land or on living things such as trees, shrubs, or animals. However, you can claim CCA on timber limits, cutting rights, and wood assets. For more details, see Interpretation Bulletins IT-481, Timber Resource Property and Timber Limits, and IT-501, Capital Cost Allowance - Logging Assets, and its Special Release.
• If you claim CCA and you later dispose of the property, you may have to add an amount to your income as a recapture of CCA. Alternatively, you may be able to deduct an additional amount from your income as a terminal loss. For more information, see "Column 5 - UCC after additions and dispositions".
• If you are a partner in a partnership that gives you a T5013 or T5013A slips, you cannot claim CCA. The T5013 or T5013A slips you receive will have already allocated to you a share of the partnership's CCA on the depreciable property.
• If you used depreciable property in your 2006 fiscal period that you used in your fishing business before January 1, 1972, complete "Part XVII properties (acquired before 1972)" in Area A on page 2 of Form T2121.

You were asking?

Q.	How do I calculate my CCA claim if I start a fishing business and my first fiscal period is from June 1, 2006, to December 31, 2006?
A.	If your fiscal period is less than 365 days, you have to prorate your CCA claim. Calculate your CCA using the rules we discuss in this chapter. However, base your CCA claim on the number of days in your fiscal period compared to 365 days. In your case, your fiscal period is 214 days. Suppose you calculate your CCA to be $3,500. The amount of CCA you can claim is $2,052 ($3,500 × 214/365).

How do you make your claim?

Use Area A on Form T2121 to calculate your 2006 deduction for CCA and any recaptured CCA and terminal losses.

If you acquired or disposed of any buildings or equipment during the fiscal period, complete Areas B, C, D, or E before completing Area A.

You will find explanations on how to complete Areas B and C in "Column 3 - Cost of additions in the year". You will find explanations on how to complete Areas D and E in "Column 4 - Proceeds of dispositions in the year".

Note
Even if you are not claiming a deduction for CCA for 2006, complete the appropriate areas of the form to show any additions and dispositions during the year.

Column 1 - Class number

Enter the class numbers of your properties in this column. If this is the first year you are claiming CCA, see "Column 3 - Cost of additions in the year" before completing column 1. If you claimed CCA last year, you can get this information from last year's form.

Generally, if you own several properties in the same class, you combine the capital cost of all these properties in one class.

We explain the more common classes of property in "Classes of depreciable property". We also list most of the classes and their rates in "Capital cost allowance (CCA) rates".

Column 2 - Undepreciated capital cost (UCC) at the start of the year

If this is the first year you are claiming CCA, skip this column. Otherwise, enter in this column the UCC for each class at the end of last year. These amounts were entered in column 10 last year.

Subtract any investment tax credit (ITC) you claimed or were refunded in 2005 from your UCC at the start of 2006. Also subtract any 2005 ITC you carried back to a year before 2005.

You may have received a GST/HST input tax credit in 2005 for a passenger vehicle you used less than 90% of the time in your business. In this case, subtract the amount of the credit from your beginning UCC. For more information, see "Grants, subsidies, and rebates".

Note
In 2006, you may be claiming, carrying back, or getting a refund of an ITC. If you still have depreciable property in the class, you have to adjust the UCC of the class to which the property belongs in 2007. To do this, subtract the amount of the ITC from the UCC at the beginning of 2007. When there is no property left in the class, report the amount of the ITC as income in 2007.

Column 3 - Cost of additions in the year

If you acquire or make improvements to depreciable property in the year, we consider them to be additions to the class in which the property belongs. You should:

• complete Areas B and C of Form T2121; and
• enter in column 3 of Area A for each class the figure from column 5 of each class in Areas B and C.

If a chart asks for the personal part of a property, this refers to the part that you use that is separate from what you use for fishing business. For example, if you use 25% of the building you live in for business, your personal part is the other 75%.

Do not include the value of your labour in the cost of a property you build or improve, but include the cost of surveying or valuing a property you acquire. Remember that a property usually has to be available for use before you can claim CCA. See the definition of available for use.

If you received insurance proceeds to reimburse you for the loss or destruction of depreciable property, enter the amount you spent to replace the property in column 3 of Area A, and also in Area B or C, whichever applies. Include the amount of insurance proceeds as deemed proceeds of disposition in column 4 of Area A and also in Area D or E, whichever applies.

If you replaced a lost or destroyed property within a year of the loss, special rules for replacement property may apply to you. See Interpretation Bulletins IT-259, Exchanges of Property, and IT-491, Former Business Property, and its Special Release.

To find out if any special rules apply when you acquire property, see "Special situations".

Area B - Details of equipment additions in the year

List in this chart the details of all equipment, machinery, or motor vehicles you acquired or improved in 2006. Group the equipment into the applicable classes and put each class on a separate line.

Equipment includes a motor vehicle, machinery, and equipment you get to use in your fishing business.

Enter on line 9925 the total business part of the cost of the equipment. See the definition of capital cost.

Area C - Details of building additions in the year

List the details of all buildings you acquired or improved in 2006. Group the buildings into the applicable classes and put each class on a separate line.

Enter on line 9927 the total business part of the cost of the buildings. The cost includes the purchase price of the building, plus any related expenses that you should add to the capital cost of the building such as legal fees, land transfer taxes, and mortgage fees. See the definition of capital cost.

Land

Land is usually not depreciable property. Therefore, you cannot claim CCA on its cost. If you acquire a property that includes both land and a building, enter in column 3 of Area C only the cost of the building. To work out the building's capital cost, you have to split between the land and the building any fees that relate to buying the property. Related fees may include legal and accounting fees.

Calculate the part of the related fees you can include in the capital cost of the building as follows:

building value ÷ total purchase price

×

legal, accounting, or other fees

=

the part of the fees you can include in the building's cost

You do not have to split a fee if it relates either to the land or the building. In this case, you would add the amount of the fee to the cost to which it relates.

Area F - Details of land additions and dispositions in the year

Enter the total cost of acquiring land in 2006 on line 9923. The cost includes the purchase price of the land plus any related expenses that you should add to the capital cost of the land, such as legal fees, land transfer taxes, and mortgage fees.

You cannot claim CCA on land. Do not enter this amount in column 3 of Area A.

Column 4 - Proceeds of dispositions in the year

Enter the details of your 2006 dispositions on Form T2121, as explained below.

If you disposed of a depreciable property during your 2006 fiscal period, enter in column 3 of the appropriate dispositions chart one of the following amounts, whichever is less:

• your proceeds of disposition, minus any related expenses; or
• the capital cost of your depreciable property.

Note
If a chart asks for the personal part of a property, this refers to the part that you use that is separate from the part you use for business. For example, if you use 25% of the building you live in for business, your personal part is the other 75%.

Enter in column 4 of Area A for each class the figure from column 5 of each class in Areas D and E.

If you received insurance proceeds to reimburse you for the loss or destruction of depreciable property, enter the amount you spent to replace the property in column 3 of Area A, and also in Area B or C, whichever applies. Include the amount of insurance proceeds as deemed proceeds of disposition in column 4 of Area A and also in Area D or E, whichever applies.

If you sell a property for more than it cost, you will have a capital gain. See Guide T4037, Capital Gains, for details. You cannot have a capital loss when you sell depreciable property. However, you may have a terminal loss. See "Column 5 - UCC after additions and dispositions" below for an explanation of terminal losses.

If all of the proceeds of disposition are not received in the year, see Interpretation Bulletin IT-220, Capital Cost Allowance - Proceeds of Disposition of Depreciable Property, and its Special Release.

Area D - Details of equipment dispositions in the year

In this chart, list the details of all equipment and motor vehicles you disposed of in your 2006 fiscal period. Group the equipment into the classes that apply, and put each class on a separate line.

Enter on line 9926 the total business part of the proceeds of disposition of the equipment and motor vehicles.

Area E - Details of building dispositions in the year

In this chart, list the details of all buildings you disposed of in your 2006 fiscal period. Group the buildings into the classes that apply and put each class on a separate line.

Enter on line 9928 the total business part of the proceeds of disposition of the buildings.

Area F - Details of land additions and dispositions in the year

Enter on line 9924 the total of all amounts you received or will receive for disposing of land in the fiscal period.

Column 5 - UCC after additions and dispositions

You cannot claim CCA when the amount in column 5 is:

• negative (see "Recapture of CCA"); or
• positive and you do not have any property left in that class at the end of your 2006 fiscal period (see "Terminal loss" below).

In either case, enter "0" in column 10.

Recapture of CCA

If the amount in column 5 is negative, you have a recapture of CCA. Enter your recapture on the "Other income" line of Form T2121. A recapture of CCA can happen if you sell the property, or if you receive a government grant or claim an investment tax credit. A recapture of CCA can also happen if the proceeds from the sale of depreciable property are more than the total of:

• the UCC of the class at the start of the fiscal period; and
• the capital cost of any new additions during the fiscal period.

In some cases, you may be able to postpone a recapture of CCA. For example, you may sell a property and replace it with a similar one, someone may expropriate your property, or you may transfer property to a corporation or a partnership.

Terminal loss

If the amount in column 5 is positive and you no longer own any property in that class, you may have a terminal loss. More precisely, you may have a terminal loss when, at the end of a fiscal period, you have no more property in the class but still have an amount which you have not deducted as CCA. You can usually subtract this terminal loss from your gross fishing income in the year you disposed of the depreciable property. Enter your terminal loss on line 9270, "Other expenses," of Form T2121.

For more information on recapture of CCA and terminal loss, see Interpretation Bulletin IT-478, Capital Cost Allowance - Recapture and Terminal Loss.

Note
The rules for recapture of CCA and terminal loss do not apply to passenger vehicles in Class 10.1. However, to calculate your CCA claim, see the comments in "Column 7 - Base amount for CCA".

Column 6 - Adjustment for current-year additions

In the year you acquire or make additions to a property, you can usually claim CCA on only one-half of your net additions (the amount in column 3 minus the amount in column 4). We call this the 50% rule. Column 6 allows you to adjust the cost of property you got in 2006.

Calculate your CCA claim only on the net adjusted amount. Do not reduce the cost of the additions in column 3 or the CCA rate in column 8. For example, if you acquired a property in your 2006 fiscal period for $30,000, you would base your CCA claim on $15,000 ($30,000 × 50%).

If you acquired and disposed of depreciable property of the same class in your 2006 fiscal period, the calculation in column 6 restricts your CCA claim. Calculate the CCA you can claim as follows:

• Determine which of the following amounts is less:
  • the proceeds of disposition of your property minus any related costs or expenses; or
  • the capital cost.
• Subtract the above amount from the capital cost of your addition.
• Enter 50% of the result in column 6. If the result is negative, enter "0."

In some cases, you do not make an adjustment in column 6. For example, you may buy depreciable property in a non-arm's length transaction that the seller continuously owned from the day that is at least 364 days before the end of your 2006 fiscal period to the day the property was purchased. However, if you transfer personal property such as a car or personal computer into your business, the 50% rule applies to the particular property transferred.

Also, some properties are not subject to the 50% rule. Some examples are those in Classes 13, 14, 23, 24, 27, 29, and 34, as well as some of those in Class 12, such as most small tools that cost less than $200 ($500 after May 1, 2006, as proposed).

The 50% rule does not apply when the available-for-use rule denies a CCA claim until the second tax year after the year you acquired the property.

For more information on the 50% rule, see Interpretation Bulletin IT-285, Capital Cost Allowance - General Comments.

Column 7 - Base amount for CCA

Base your CCA claim on this amount.

For a Class 10.1 vehicle you disposed of in your 2006 fiscal period, you may be able to claim 50% of the CCA that would be allowed if you still owned the vehicle at the end of your 2006 fiscal period. This is known as the half-year rule on sale.

You can use the half-year rule on sale if, at the end of your 2005 fiscal period, you owned the Class 10.1 vehicle you disposed of in 2006. If this applies to you, enter 50% of the amount from column 2 in column 7.

Column 8 - Rate (%)

In this column, enter the rate for each class of property in Area A. For more detailed information on certain kinds of property, see "Classes of depreciable property". For a list of rates, see "Capital cost allowance (CCA) rates".

Column 9 - CCA for the year

In column 9, enter the CCA you choose to deduct for 2006. The CCA you deduct cannot be more than the amount you get when you multiply the amount in column 7 by the rate in column 8. You can deduct any amount up to the maximum.

If this is your first year of business, you may have to prorate your CCA claim. See "You were asking?"

Add all the amounts in column 9. Enter the total on line 9936, "Capital cost allowance," on Form T2121. If you are using the property for both business and personal use, see "Personal use of property" to find out how to calculate your CCA claim.

Column 10 - UCC at the end of the year 

This is the undepreciated capital cost (UCC) at the end of your 2006 fiscal period. This is the amount you will enter in column 2 when you calculate your CCA claim next year.

Enter "0" in column 10 if you have a terminal loss or a recapture of CCA. There will not be an amount in column 10 for a Class 10.1 passenger vehicle you dispose of in the year.

Classes of depreciable property

In this part, we discuss the more common types of depreciable properties. We list most of the classes and their rates under "Capital cost allowance (CCA) rates".

Other property - Class 8 (20%)

Class 8 includes property that is not included in any other class. For example, furniture, appliances, fixtures, machinery, and equipment you use in your business are all in this class.

Electronic office equipment and data network infrastructure equipment - Class 8 (20%), Class 10 (30%), Class 45 (45%), and Class 46 (30%)

CCA classes for electronic equipment include:

Class 8 (20%)

Include in Class 8 computer software (other than systems software in Class 45), photocopiers, and electronic communication equipment such as fax machines or telephone equipment.

Because computer software and office equipment can become obsolete before you can fully deduct their cost for income tax purposes, you can elect to include the Class 8 property in a separate class. The election will only apply to each property that costs $1,000 or more. (The election does not apply to property in Class 45 and Class 46.)

This separate class does not change the CCA rate that applies to the properties. However, the election lets you calculate a separate CCA deduction for a five-year period. In this way, when all the property in the class is disposed of, the undepreciated capital cost (UCC) of the equipment will be fully deductible as a terminal loss. For more information on terminal losses, see "Column 5 - UCC after additions and dispositions".

Class 12 (100%)

Class 12 includes computer software that is not systems software. Software in Class 12 is subject to the 50% rule.

Class 45 (45%)

Include in Class 45 computer equipment and systems software acquired after March 22, 2004. (Previously, computer equipment and systems software were included in Class 10 with a 30% CCA rate.)

Class 46 (30%)

Class 46 was created for data network infrastructure equipment acquired after March 22, 2004. (Previously data network infrastructure equipment was included in Class 8 with a 20% CCA rate.)

Passenger vehicles - Class 10 and Class 10.1 (30%)

Your passenger vehicle can belong to either Class 10 or Class 10.1. Include your passenger vehicle in Class 10 unless it meets a Class 10.1 condition. List each Class 10.1 vehicle separately.

Include your passenger vehicle in Class 10.1 if you bought it in 2006 or 2005 and it cost more than $30,000. We consider the capital cost of that vehicle to be $30,000 plus the related GST and PST, or HST.

The $30,000 amount is the capital cost limit for a passenger vehicle. However, to determine the class to which your passenger vehicle belongs, you have to use the cost of the vehicle before you add GST and PST, or HST.

Note
For this example we used 7% as the GST rate and 8% as the PST rate. For your calculation, use the current GST rate and the PST rate that applies in your province or territory. If you live in a participating province that has harmonized sales tax (HST), use the current HST rate. For more information about GST/HST, see Guide RC4022, General Information for GST/HST Registrants.

Special rates for certain boats

In most cases, a fishing boat belongs to Class 7. Therefore, you can claim CCA at a maximum rate of 15%. However, there are some exceptions to this rule.

A fishing boat, or the cost to convert it, is eligible for a special rate of CCA as follows:

• If you bought the boat between November 13, 1981, and December 31, 1982, you can claim CCA at a yearly rate of 33 1/3%. You can do this only in certain cases.
• If you bought the boat after December 31, 1982, you can claim CCA at a rate of 16 2/3% for the year you bought the boat. You can claim 33 1/3% for the years after you bought the boat.

You can claim this special rate on the following:

• a boat that was built and registered in Canada and was not used for any purpose before you bought it;
• the cost to convert or alter a boat in Canada; and
• a boat, or the cost to convert it, established as a separate prescribed class under the now-repealed Canadian Vessel Construction Assistance Act.

Small tools - Class 12 (100%)

Include small tools that cost less than $200 ($500 after May 1, 2006, as proposed) in Class 12. Most small tools in Class 12 are not subject to the 50% rule. They are fully deductible in the year of purchase.

Leasehold interest - Class 13

Special CCA rules apply to leasehold interests in property. If you have a leasehold interest, see Interpretation Bulletin IT-464, Capital Cost Allowance - Leasehold Interests, for details.

Special situations

Personal use of property

If you buy property for both business and personal use, there are two ways to show the business part of the property in Area B or Area C:

• If your business use stays the same from year to year, enter in Area B or Area C the total cost of the property in column 3, the personal part in column 4, and the business part in column 5. To calculate the CCA you can claim, enter the amount from column 5 in column 3 of Area A.
• If your business use changes from year to year, enter in Area B or Area C the total cost of the property in column 3 and column 5, and enter "0" in column 4. To calculate the CCA you can claim, enter the amount from column 5 in column 3 of Area A. When you claim CCA, you will have to calculate the allowable part you can claim for business use.

The CCA calculated for the business use of a work space in your home in Area A of Form T2121 must be reported on the chart "Calculation of business-use-of-home expenses" on page 2 of the form. This CCA must be subtracted from the total amount of the CCA for the year calculated in Area A and must not be included on line 9936, "Capital cost allowance," on page 1 of the form.

Note
The capital cost limits on a Class 10.1 vehicle (a passenger vehicle) still apply when you split the capital cost between business and personal use. For more details, see "Passenger vehicles - Class 10 and Class 10.1 (30%)".

Changing from personal to business use

If you bought a property for personal use and started using it in your business in your 2006 fiscal period, there is a change in use. You need to determine the capital cost for business purposes.

If the FMV of a depreciable property is less than its original cost when you change its use, the amount you put in column 3 of either Area B or Area C is the FMV of the property (excluding the land value if the property is land and a building).

If the FMV is more than the original cost of the property (excluding the land value if the property is land and a building) when you change its use, use the following chart to determine the amount to enter in column 3 of Area B or C.

Capital cost calculation

Actual cost of the property				$		1
FMV of the property	$		2
Amount on line 1	$		3
Line 2 minus line 3 (if negative, enter "0")	$		4
Enter any capital gains deduction claimed for the amount on line 4* $           × 2 =	$		5
Line 4 minus line 5 (if negative, enter "0")	$		× 1/2 =	$		6
Capital cost Line 1 plus line 6				$		7
* Enter the amount that relates to the depreciable property only.
Enter the capital cost of the property from line 7 in column 3 of Area B or C.

Note
We consider you to have acquired the land for an amount equal to its FMV when you change its use. Include this amount on line 9923, "Total cost of all land additions in the year," in Area F of Form T2121.

Grants, subsidies, and rebates

You may receive a grant, subsidy, or rebate from a government or a government agency to buy depreciable property. When this happens, subtract the amount you received from the property's capital cost. Do this before you enter the capital cost in column 3 of Area B or C.

You may have paid GST/HST on some of the depreciable property you acquired for your business. If so, you may have also received an input tax credit (ITC) from us.

The ITC is government assistance. Therefore, subtract it from the property's capital cost. Do this before you enter the capital cost in column 3 of Area B or Area C, whichever applies. If you receive an ITC for a passenger vehicle you use in your business, use one of these methods:

• For a passenger vehicle you use 90% or more of the time for your business, subtract the amount of the ITC from the vehicle's cost before you enter its capital cost in column 3 of Area B.
• For a passenger vehicle you use less than 90% of the time for your business, do not make an adjustment in 2006. In 2007, subtract the amount of the ITC from your beginning UCC.

You may get an incentive from a non-government agency to buy depreciable property. If this happens, you can either include the amount in income or subtract the amount from the capital cost of the property.

For more details about government assistance, see Interpretation Bulletin IT-273, Government Assistance - General Comments.

Non-arm's length transactions

When you acquire depreciable property in a non-arm's length transaction, there are special rules to follow to determine the property's capital cost. These special rules will not apply if you acquire the property because of someone's death.

You can acquire depreciable property in a non-arm's length transaction from an individual resident in Canada, a partnership with at least one partner who is an individual resident in Canada, or a partnership with at least one partner that is another partnership.

If you pay more for the property than the seller paid for it, calculate the cost as follows:

Capital cost calculation
Non-arm's length transaction - resident of Canada

The seller's cost or capital cost				$		1
The seller's proceeds of disposition	$		2
Amount on line 1	$		3
Line 2 minus line 3 (if negative, enter "0")	$		4
Enter any capital gains deduction claimed for the amount on line 4 $           × 2 =	$		5
Line 4 minus line 5 (if negative, enter "0")	$		× 1/2  =	$		6
Capital cost Line 1 plus line 6				$		7
Enter this amount in column 3 of either Area B or Area C, whichever applies. Do not include the cost of the related land, which you have to include on line 9923, "Total cost of all land additions in the year," in Area F of Form T2121.

You can also buy depreciable property in a non-arm's length transaction from a corporation or from an individual who is not resident in Canada, or a partnership with no partners who are individuals resident in Canada or no partners that are other partnerships.If you pay more for the property than the seller paid for it, calculate the capital cost as follows:

Capital cost calculation
Non-arm's length transaction - non-resident of Canada

The seller's cost or capital cost				$		1
The seller's proceeds of disposition	$		2
Amount on line 1	$		3
Line 2 minus line 3 (if negative, enter "0")	$		× 1/2  =	$		4
Capital cost Line 1 plus line 4				$		5
Enter this amount in column 3 of either Area B or Area C, whichever applies. Do not include the cost of the related land, which you have to include on line 9923, "Total cost of all land additions in the year," in Area F of Form T2121.

If you buy depreciable property in a non-arm's length transaction and pay less for it than the seller paid, your capital cost is the same amount as the seller paid. We consider you to have deducted as CCA the difference between what you paid and what the seller paid.

There is a limit on the cost of a passenger vehicle you buy in a non-arm's length transaction. The cost is, whichever one of these three amounts is less:

• the FMV when you buy the vehicle;
• $30,000 plus any GST and PST, or HST, you would pay on $30,000 if you bought the vehicle in 2006 or 2005; or
• the seller's cost amount of the vehicle when you buy it.

The cost amount can vary, depending on what the seller used the vehicle for before you bought it. If the seller used the vehicle to earn income, the cost amount would be the UCC of the vehicle when you buy it. If the seller did not use the vehicle to earn income, the cost amount would usually be the original cost of the vehicle.

For more details on non-arm's length transactions, see Interpretation Bulletin IT-419, Meaning of Arm's Length.

Special rules for disposing of a building in the year

If you disposed of a building in the year, special rules may apply that make the proceeds of disposition an amount other than the actual proceeds of disposition. This happens when you meet both of the following conditions:

• you disposed of the building for an amount less than both its cost amount, as calculated below, and its capital cost; and
• you, or a person with whom you do not deal at arm's length, owned the land that the building is on, or the land next to it, which was necessary for the building's use.

Calculate the cost amount as follows:

• If the building was the only property in the class, the cost amount is the undepreciated capital cost (UCC) of the class before you disposed of the building.
• If there is more than one property in the same class, you have to calculate the cost amount of each building as follows:

capital cost of the building ÷ capital cost of all property in the class not previously disposed of

×

UCC of the class

=

cost amount of the building

Note
If any property in the class of the building that was acquired at non-arm's length was previously used for a purpose other than gaining or producing income, or if the part of a property used for gaining or producing income has changed, the capital cost of such property has to be recalculated to determine the cost amount of the property.

If you disposed of a building under these conditions and you or a person with whom you do not deal at arm's length disposed of the land in the same year, calculate your deemed proceeds of disposition as shown in Calculation A below .

If you or a person with whom you do not deal at arm's length did not dispose of the land in the same year as the building, calculate your deemed proceeds of disposition as shown in Calculation B.

Calculation A
Land and building sold in the same year

FMV of the building when you disposed of it	$		A
FMV of the land just before you disposed of it	$		B
Line A plus Line B				$		C
Seller's adjusted cost base of the land	$		D
Total capital gains (without reserves) from any disposition of the land (such as a change in use) in the three-year period before you or a person not dealing at arm's length with you disposed of the building either to you or another person not dealing at arm's length with you	$		E
Line D minus line E (if negative, enter "0")	$		F
Line B or line F, whichever amount is less				$		G
Line C minus line G (if negative, enter "0")				$		H
Cost amount of the building just before you disposed of it	$		I
Capital cost of the building just before you disposed of it	$		J
Line I or line J, whichever amount is less	$		K
Line A or line K, whichever amount is more				$		L
Deemed proceeds of disposition of the building
Line H or line L, whichever amount is less (enter this amount in column 3 of Area E, and include it in column 4 of Area A)				$		M
Deemed proceeds of disposition of the land
Proceeds of disposition of the land and building				$		N
Amount from line M				$		O
Line N minus line O (include this amount on line 9924 of Area F)				$		P
If you have a terminal loss on the building, include it on line 9270, "Other expenses," on Form T2121.

Calculation B
Land and building sold in different years

Cost amount of the building immediately before you disposed of it	$		A
FMV of the building immediately before you disposed of it	$		B
Line A or line B, whichever amount is more				$		C
Actual proceeds of disposition, if any				$		D
Line C minus line D				$		E
Line E $          × 1/2  =				$		F
Amount from line D				$		G
Deemed proceeds of disposition for the building
Line F plus line G (enter this amount in column 3 of Area E and include it in column 4 of Area A)				$		H
If you have a terminal loss on the building, include it on line 9270, "Other expenses," on Form T2121.

Ordinarily, you can deduct the full amount of a terminal loss, but only part of a capital loss. Calculation B ensures that you use the same factor to calculate a terminal loss on a building as you use to calculate a capital loss on land. As a result of this calculation, you add part of the amount on line E to the proceeds of disposition from the building (see "Terminal loss").

Replacement property

In a few cases, you can postpone or defer adding a capital gain or recapture of CCA to income. You might sell a business property and replace it with a similar one, or your property might be stolen, destroyed, or expropriated, and you replace it with a similar one. You can defer tax on the amount of sale proceeds that you reinvest in replacement property within a reasonable period of time. To defer reporting the gain or recapture of CCA, you must acquire and you, or a person related to you, must use the new property for the same or similar purpose as the one, which you are replacing.

If you need more details, see Interpretation Bulletins IT-259, Exchanges of Property, and IT-491, Former Business Property, and its Special Release.

You can also defer a capital gain or recapture of CCA when you transfer property to a corporation, partnership, or your child. For more details on transferring property to your child, see "Transfer of fishing property to a child".

For information on transfers to a corporation or a partnership, see:

• Information Circular IC76-19, Transfer of Property to a Corporation Under Section 85;
• Interpretation Bulletin IT-291, Transfer of Property to a Corporation Under Subsection 85(1);
• Interpretation Bulletin IT-378, Winding-up of a Partnership; and
• Interpretation Bulletin IT-413, Election by Members of a Partnership Under Subsection 97(2).

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Chapter 4 - Eligible capital expenditures

What is an eligible capital expenditure?

You may buy property that does not physically exist but gives you a lasting economic benefit. Some examples are goodwill, franchises, concessions, or licences for an unlimited period. We call this kind of property eligible capital property. The price you pay to buy this type of property is an eligible capital expenditure.

We consider franchises, concessions, or licences with a limited period to be depreciable properties, not eligible capital properties. For details about depreciable properties, see Chapter 3.

What is an annual allowance?

You cannot deduct the full cost of an eligible capital expenditure, since it is a capital cost and gives you a lasting economic benefit. However, you can deduct part of its cost each year. We call the amount you can deduct your annual allowance.

What is a cumulative eligible capital (CEC) account?

This is the bookkeeping record you establish to determine your annual allowance. You also use your CEC account to keep track of the property that you buy and sell. We call the property in your CEC account your eligible capital property. You base your annual allowance on the balance in your account at the end of your fiscal period. Keep a separate account for each business.

How to calculate your annual allowance

CEC account

Complete the following chart to calculate your annual allowance and the balance in your CEC account at the end of your 2006 fiscal period.

Calculating your annual allowance and CEC
account balance at the end of your 2006 fiscal period

Balance in the account at the start of your 2006 fiscal period				$		1
Eligible capital expenditures you made or incurred in your 2006 fiscal period	$		× 75%	$		2
Line 1 plus line 2				$		3
All the amounts you received or are entitled to receive from the sale of eligible capital property in your 2006 fiscal period	$		4
All the amounts that became receivable in your 2006 fiscal period from the sale of eligible capital properties before June 18, 1987	$		5
Line 4 plus line 5	$		6
Line 6 × 75%				$		7
CEC account balance Line 3 minus line 7				$		8
Annual allowance 7% × line 8				$		9
CEC account balance at the end of your 2006 fiscal period Line 8 minus line 9				$		10

Note
An eligible capital expenditure is reduced by the amount of any assistance received or receivable from a government for the expenditure. Also, an amount forgiven (or entitled to be forgiven) on government debt reduces your CEC account. Special conditions may apply to non-arm's length transactions. For more information, see Interpretation Bulletin IT-123, Transactions Involving Eligible Capital Property.

You can deduct an annual allowance if there is a positive balance (line 8) in your CEC account at the end of your 2006 fiscal period. You do not have to claim the full amount of the annual allowance for a given year. You can deduct any amount you want, up to the maximum allowable of 7%. If your fiscal period is less than 365 days, you have to prorate your claim. Base your claim on the number of days in your fiscal period compared to 365 days.

If there is a negative balance in your CEC account, see "Sale of eligible capital property in the 2006 fiscal period". The following is an example of how to calculate the annual allowance and account balance.

Sale of eligible capital property in the 2006 fiscal period

When you sell eligible capital property, you have to subtract part of the proceeds of disposition from your CEC account.

You have to do this calculation if you sold eligible capital property:

• in your 2006 fiscal period; or
• before June 18, 1987, and the proceeds of disposition become due to you in your 2006 fiscal period.

For 2006, the amount you have to subtract is 75% of the total of these amounts:

• the proceeds of disposition of all the eligible capital property you sell in your 2006 fiscal period (include the amount from a sale even if you do not get any or all of the proceeds until after 2006); and
• the amount of any proceeds that become due to you in your 2006 fiscal period from eligible capital property you sold before June 18, 1987.

There may be a negative amount (excess) in your CEC account after you subtract the required amount. In this case, you will have to include part of the negative amount in your business income.

Multiply by 2/3 the part of the negative amount in your CEC account that exceeds the annual allowances deducted. To that result, add whichever is less, the excess or annual allowances deducted. This is the amount to include in your business income. The following example shows how to calculate the amount to include in your business income.

Exempt capital gains balance (ECGB)

If you filed a Form T664, Election to Report a Capital Gain on Property Owned at the End of February 22, 1994, for your shares of, or interest in, a flow-through entity, the elected capital gain you reported created an ECGB for that entity.

Your ECGB expired after 2004. If you did not use all of your ECGB by the end of 2004, you should have added the unused balance to the adjusted cost base of the applicable property in the year 2005.

Election

Under certain conditions, you can elect to treat the disposition of an eligible capital property (other than goodwill) as a capital gain in your CEC account if you sold your interest in property, such as a franchise, concession, or licence that has an unlimited life. You can elect to deem the proceeds of disposition of the eligible capital property to be equal to its original cost.

You can then declare a capital gain equal to your actual proceeds of disposition minus the cost of acquisition. Report the details on the "Real Estate, depreciable property, and other properties" line of Schedule 3, Capital Gains (or Losses) in 2006. This election will benefit you if you have unused capital losses to apply against the capital gain.

The election is available if you meet the following conditions:

• you disposed of an eligible capital property other than goodwill;
• the cost of the eligible capital property can be determined;
• the proceeds of disposition exceed the cost; and
• you do not have an exempt capital gains balance.

File your election by attaching a note to your income tax and benefit return.

Replacement property

If you sell an eligible capital property and replace it with another one for the same or similar use, you can postpone all or part of any gain on the sale. This happens if you acquire a replacement eligible capital property within a certain period of time. To do this, you have to replace the property no later than one year after the end of the tax year in which you sell the original property. For more details, see Interpretation Bulletin IT-259, Exchanges of Property.

Eligible capital property of a deceased taxpayer

Upon death, a taxpayer is deemed to have disposed of eligible capital property immediately prior to death, for proceeds of disposition equal to 4/3 of the cumulative eligible capital property at that time.

The person who acquires the eligible capital property from the deceased is deemed to acquire it at the deemed disposition amount mentioned in the previous paragraph.

For more information about eligible capital expenditures, see Interpretation Bulletin IT-123, Transactions Involving Eligible Capital Property, and Interpretation Bulletin IT-143, Meaning of Eligible Capital Expenditure.

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Chapter 5 - Fishing losses

When your fishing expenses are more than your fishing income in a year, you have a net loss. If your net loss from fishing is higher than your other income in the current year, you will be able to carry back or carry forward the balance to reduce your taxes in other years.

For example, assume that in 2006 your fishing income was $18,000 and your total fishing expenses were $25,000. Therefore, your net loss from fishing was $7,000 [$18,000 - $25,000 = ($7,000)]. Also, assume that in 2006 you had employment income of $2,000. To check if you are able to carry back or carry forward part of this loss, you subtract your other income in 2006 from your 2006 net loss from fishing ($7,000 - $2,000 = $5,000). In this example, you would be able to carry back or carry forward a loss of $5,000.

Fishing and non-capital losses

Fishing losses

You may have net fishing income in 2006 instead of a fishing loss. If so, you may be able to apply to your 2006 income tax and benefit return fishing losses you had from 1996 to 2005. You can apply these losses as long as you did not already deduct them. You have to apply the loss from the earliest year first before you apply the losses from later years. Enter the amount on line 252 of your income tax and benefit return.

You may have a fishing loss in 2006. If you do, you can carry back this loss for 3 years or carry it forward for up to 10 years. To carry back a 2006 loss, complete Form T1A, Request for Loss Carryback and attach one copy of the form to your 2006 income tax and benefit return. Do not file an amended income tax and benefit return for the year to which you want to apply the loss.

Non-capital losses

You may have incurred a loss in 2006 from a business that was not fishing. If this loss is more than your other income for the year, you may have a non-capital loss. Use Form T1A, Request for Loss Carryback to calculate your 2006 non-capital loss.

You can carry back your 2006 non-capital loss up to three years. If you choose to carry back your 2006 non-capital loss to your 2003, 2004, or 2005 income tax and benefit return, complete Form T1A and attach one copy of the form to your 2006 income tax and benefit return. Do not file an amended income tax and benefit return for the year to which you want to apply the non-capital loss. 

The carry-forward period for non-capital losses incurred in tax years ending before March 23, 2004, is seven years.

The carry-forward period for non-capital losses incurred in tax years ending after March 22, 2004, and before January 1, 2006, is 10 years.

For more details on non-capital losses, see Interpretation Bulletin IT-232, Losses - Their Deductibility in the Loss Year or in Other Years.

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Chapter 6 - Capital Gains

This chapter explains the capital gains rules for people who fish. We cover the general capital gains rules in Guide T4037, Capital Gains.

Previously, when an individual (including certain trusts) disposed of property used in a fishing business, the property was not eligible for the following rules:

• the intergenerational rollover rules;
• the lifetime capital gains exemption (LCGE); and
• a reserve allowed on certain dispositions (10-year capital gains reserve).

List the dispositions of all your properties on Schedule 3, Capital Gains (or Losses) in 2006.

You may be a partner in a partnership that provides you with a T5013 or T5013A information slips. If the partnership has a capital gain, the partnership will allocate part of that gain to you. The gain will be reported on the partnership's financial statements or on your T5013 or T5013A information slips.

What is a capital gain?

You have a capital gain when you sell, or are considered to have sold, a capital property for more than its adjusted cost base plus the expenses or outlays you incurred to sell the property. To calculate your capital gain, subtract the adjusted cost base of your property from the proceeds of disposition. From this amount, subtract any outlays or expenses you incurred when selling your property.

In most cases, capital property includes land, buildings, and equipment that you used in your fishing business. Therefore, capital property includes depreciable and non-depreciable property.

You have to include your taxable capital gain in your income. Not all of your capital gain is taxable. For 2006 your taxable capital gain is one-half of your capital gain.

A disposition of depreciable property may result in a recapture of capital cost allowance (CCA).

What is a capital loss?

You have a capital loss when you sell, or are considered to have sold, non-depreciable capital property for less than its adjusted cost base plus the expenses or outlays you incurred to sell the property. To calculate your capital loss, subtract the adjusted cost base of your property from the proceeds of disposition. From this amount, subtract any outlays or expenses you incurred when selling your property.

Not all of your capital loss is deductible. For 2006, your allowable capital loss is one-half of your capital loss. You can only deduct an allowable capital loss from a taxable capital gain.

A loss on a disposition of depreciable property may only result in a terminal loss.

Definitions

Before you can determine your capital gain or loss, you will need to know the following terms.

Proceeds of disposition - In most cases, the proceeds of disposition is the sale price of the property.

Adjusted cost base (ACB) - The ACB is usually the original cost of the property (including amounts you paid to buy it, such as commissions and legal fees). ACB includes other costs, such as the cost of any additions or the cost to renovate or improve the property.

Outlays and expenses - Outlays and expenses are costs you incurred to sell your property. These include costs such as commissions, surveyors' fees, transfer taxes, and advertising costs.

Fair market value (FMV) - This is generally the highest dollar value you can get for your property. See the definition of fair market value.

How to calculate your capital gain or loss

To calculate your capital gain or loss, use the following formula:

Proceeds of disposition	$		A
Adjusted cost base	$		B
A minus B	$		C
Outlays and expenses	$		D
C minus D = Capital gain (loss)	$		E

Note
You have to calculate the capital gain or loss on each property separately.

Qualified fishing property and cumulative capital gains deduction

If you have a taxable capital gain from the sale of qualified fishing property, you may be able to claim a capital gains deduction.

For details on how to calculate your capital gains deduction, see Form T657, Calculation of Capital Gains Deduction for 2006, and Form T936, Calculation of Cumulative Net Investment Loss (CNIL) to December 31, 2006.

You may be a partner in a partnership that sold capital property. In this case, the partnership includes any taxable capital gain in its income. However, as a partner, you can only claim the capital gains deduction for your share of the gain on qualified fishing property.

What is qualified fishing property?

Qualified fishing property is certain property you, your spouse, or common-law partner own. It is also certain property owned by a family-fishing partnership in which you, your spouse, or common-law partner holds an interest. We define spouse and common-law partner in the General Income Tax and Benefit Guide.

Qualified fishing property includes:

• real property or a fishing vessel that was used principally in the course of carrying on the business of fishing by a qualified entity in respect of the individual;
• a share of the capital stock of a family fishing corporation of the individual or the individual's spouse or common-law partner;
• an interest in a family fishing partnership of the individual or the individual's spouse or common-law partner; or
• an eligible capital property used by a qualified entity in respect of the individual (or by a personal trust from which the individual acquired the property) in the course of carrying on the business of fishing in Canada.

For this purpose, a qualified entity in respect of an individual means:

a)	the individual;
b)	where the individual is a personal trust, a beneficiary of the trust that is entitled to receive directly from the trust any income or capital of the trust;
c)	a spouse or common-law partner, child or parent of the individual;
d)	a corporation, a share of the capital stock of which is a share of the capital stock of a family fishing corporation of an individual referred to in any of (a) to (c); or
e)	a partnership, an interest in which is an interest in a family fishing partnership of an individual referred to in any of (a) to (c).

Real property or eligible capital property

Real property or eligible capital property is qualified fishing property only if it is used to carry on a fishing business in Canada by any one of the following:

• you, your spouse or common-law partner, or any of your parents or children (we define children below);
• the beneficiary of a personal trust, or the spouse or common-law partner, parent, or child of such a beneficiary;
• a family-fishing corporation where any of the above persons owns a share of the corporation; or
• a family-fishing partnership where any of the above persons (except a family-fishing corporation) owns an interest in the partnership.

We will also consider real or eligible capital property to be used to carry on a fishing business in Canada if you meet the following conditions:

• Throughout the period of at least 24 months before the disposition, you, your spouse or common-law partner, any of your children or parents, a personal trust from which one of these persons acquired the property, or a family-fishing partnership (in which any of these persons has an interest) must have owned the property; and
• You meet one of the following two conditions:
  • the property or the property it replaced was used mainly in a fishing business in Canada in which any of the above persons was actively engaged on a regular and ongoing basis. Also, for at least 24 months of ownership, for the person that owned the property, that person's gross income from the fishing business was larger than that person's income from all other sources in the year; or
  • a family-fishing partnership or corporation used the property for at least 24 months, mainly to carry on a fishing business in Canada. Also, during this time, you, your spouse or common-law partner, any of your children, or your parents must have been actively engaged on a regular and ongoing basis in the fishing business.

Transfer of fishing property to a child

You may be able to transfer Canadian fishing property to your child. When you do this, you can postpone tax on any taxable capital gain and any recapture of capital cost allowance until the child sells the property. To do this, both of these conditions have to be met:

• your child is a resident of Canada just before the transfer; and
• the fishing property was used mainly in a fishing business in which you, your spouse or common-law partner, or any of your children were actively engaged on a regular and ongoing basis before the transfer.

Your children include:

• your natural child, your adopted child, or your spouse's or common-law partner's child;
• your grandchild or great-grandchild;
• your child's spouse or common-law partner; and
• another person who is wholly dependent on you for support and who is, or was immediately before the age of 19, in your custody and under your control.

The following types of property qualify for this type of transfer:

• land used in a fishing business;
• depreciable property, including buildings; and
• eligible capital property.

Furthermore, a share of the capital stock of a family-fishing corporation and an interest in a family-fishing partnership also qualify for this transfer if your child is a resident of Canada just before the transfer.

For depreciable property, the transfer price can be any amount between its undepreciated capital cost (UCC) and its fair market value (FMV). In the case of land, the transfer price can be any amount between its adjusted cost base (ACB) and its FMV. For eligible capital property, the transfer price can be any amount between:

• its FMV; and

4/3

×

your cumulative eligible capital property from the fishing business

×

FMV of the property ÷ FMV of all your eligible capital property from the fishing business

Transfer of fishing property to a child if a parent dies in the year

We allow a tax-free transfer of a deceased taxpayer's Canadian fishing property to a child if all of these conditions are met:

• the child was resident in Canada just before the parent's death;
• the property was used mainly in a fishing business on a regular and ongoing basis by the deceased, the deceased's spouse or common-law partner, or any of the children before the parent's death; and
• the property was transferred to the child no later than 36 months after the parent's death. In some cases, we may allow the transfer even if it took place later than 36 months after the parent's death.

The following types of fishing property qualify for this transfer:

• land or depreciable property used in a fishing business; and
• a share of the capital stock of a family-fishing corporation, and an interest in a family-fishing partnership.

For most property, the transfer price can be any amount between the ACB and its FMV.

For depreciable property, the transfer price can be an amount between the property's FMV and a special amount. For more information, see Chapter 4, "Deemed disposition of property," in Guide T4011, Preparing Returns for Deceased Persons.

The deceased's legal representative will choose the amount in the year of death. We consider the child to acquire these properties at the amount chosen.

Similar rules apply for property that a deceased person leased to the family-fishing corporation or partnership.

For eligible capital property, the transfer amount is equal to 4/3 of the cumulative eligible capital property at that time. See "Eligible Capital Property of a Deceased Taxpayer".

If a child gets a fishing property from a parent and the child later dies, the property can be transferred to the surviving parent based on the same rules.

Shares or other property of a family-fishing holding corporation can also be transferred, based on the same rules, from a spouse or common-law partner trust to a child of the settlor. The settlor is the person who sets up a trust, or the person who transfers property to a trust.

Transfer of fishing property to a spouse or common-law partner

A fisher can transfer capital fishing property to a spouse or common-law partner or to a spousal or common-law partner trust during the fisher's lifetime. At the time of the transfer, the fisher can postpone any taxable capital gain or recapture of CCA.

If the spouse or common-law partner later disposes of the property, the fisher generally has to report any taxable capital gain, not the spouse or common-law partner. This rule applies to transfers made after 1971 where the fisher is living at the time the spouse or common-law partner sells the property. However, there are exceptions to this rule. For more details, see Interpretation Bulletin IT-511, Interspousal and Certain Other Transfers and Loans of Property.

A transfer of fishing property can also occur after the fisher dies. For more information, see Chapter 4, "Deemed disposition of property" in Guide T4011, Preparing Returns for Deceased Persons.

Other special rules

You may also be able to postpone paying tax on capital gains in the following situations.

Reserves

When you dispose of a capital property, you usually receive full payment at that time. However, sometimes you receive the amount over a number of years. Generally, a reserve allows you to defer reporting part of the capital gain to the year in which you receive the proceeds.

For example, you may sell a boat for $50,000 and receive $10,000 at the time of the sale. You receive the remaining $40,000 over four years. In this situation, you can claim a reserve. However, there is a limit to the number of years you can do this.

For more information on reserves, see Guide T4037, Capital Gains, and Form T2017, Summary of Reserves on Dispositions of Capital Property.

Exchanges or expropriations of property

There are special rules that apply when you dispose of a property and replace it with a similar one, or when someone expropriates your property. For more details, see Interpretation Bulletins IT-259, Exchanges of Property and IT-491, Former Business Property, and its Special Release.

Capital cost allowance (CCA) rates

This is a list of the more common depreciable properties a fishing business may use and the related class for each type of property. We show the CCA rates at the end of the list.

Depreciable property	Class No.
Automobiles	10
Boats and component parts	7
Breakwaters
Cement or stone	3
Wood	6
Buildings and component parts
Wood, galvanized, or portable	6
Other:
Acquired after 1978 and before 1988*	3
Acquired after 1987	1
Chain saws	10
Computer equipment and systems software
Acquired before March 23, 2004	10
Acquired after March 22, 2004	45
Computer software (other than systems software)	8
Data network infrastructure equipment Acquired after March 22, 2004	46
Docks
Cement, steel, stone, or wood	3
Drills - All types	8
Electric-generating equipment (not more than 15 kW)	8
Electric motors	8
Engines - Stationary	8
Ice machines	8
Leasehold interest	13
Nets	8
Office equipment including photocopiers, fax machines	8
Outboard motors	10
Passenger vehicles (see Chapter 3)	10 or 10.1
Power block - Purse seine	7
Pumps	8
Radar or radio equipment
Acquired before May 26, 1976	9
Acquired after May 25, 1976	8
Tools
Under $200 ($500 after May 1, 2006, as proposed)	12
$200 and over ($500 after May 1, 2006, as proposed)	8
Trailers	10
Traps	8
Trucks	10
Weirs	3
Weirs - Fish	8
Welding equipment	8
Wharves
Cement, steel, or stone	3
Wood	6
Windchargers	8

* You may add to or alter a Class 3 building after 1987. In this case, there is a limit on the amount you can include in Class 3. The most you can include in Class 3 is whichever is less: $500,000 or 25% of the building's cost on December 31, 1987. Include in Class 1 any costs you incur that are over this limit.

Rates - Part XI

Class 1	4%
Class 2	6%
Class 3	5%
Class 6	10%
Class 7	15%
Class 8	20%
Class 9	25%
Class 10	30%
Class 10.1	30%
Class 12	100%

GST/HST

If your total gross worldwide revenue from your taxable sales [these taxable at 0%, 7%, and 15% (0%, 6%, and 14% after June 30, 2006)] and those of your associates is more than $30,000 in a calendar quarter or in four consecutive calendar quarters, you have to register for GST/HST.

We consider crew members who receive a share of the catch, commonly known as sharespeople, to be self-employed. Therefore, they may also have to register for GST/HST.

If your gross revenue is $30,000 or less, you do not have to register for GST/HST, but you may do so voluntarily. It may benefit you to register because GST/HST registrants can claim input tax credits. These credits allow you to recover the GST/HST you have paid or owe for purchases and expenses made to provide taxable goods and services at the rates of 0%, 7%, and 15% (0%, 6%, and 14% after June 30, 2006).

Note
Nova Scotia, New Brunswick, and Newfoundland and Labrador harmonized their provincial sales tax with GST to create HST. HST applies to the same goods and services as GST but at the rate of 15% (14% after June 30, 2006).

Examples of sales and purchases that are taxable at 7% or 15% (6% or 14% after June 30, 2006) include:

• fish or other marine or freshwater animals sold as bait for recreational fishing;
• fish or other marine or freshwater animals not ordinarily used as food for human consumption;
• traps, pots, and cages;
• fish boxes;
• navigation equipment;
• repair and maintenance materials; and
• stationary engines and outboard motors.

Many fish products and certain large fishing equipment are taxable, but at the rate of 0%. We refer to these as zero-rated. You do not pay GST/HST when you buy these products, and you do not charge GST/HST when you sell them to your customers.

Here is the list of zero-rated fishing products and equipment:

• bait, such as minnows, used in commercial fishing, as long as the catch is used for human consumption;
• fish feed and by-products sold in quantities of at least 20 kg according to the Feeds Regulations;
• fish or other marine or freshwater animals, such as oysters, clams, and mussels, not further processed than frozen, salted, smoked, dried, scaled, eviscerated, or filleted, provided they are normally used as food for human consumption, and not used as bait for recreational fishing;
• fish eggs that are produced for hatching purposes;
• fishing vessels you buy either inside or outside Canada to use in commercial fishing, if you provide all the following documents to the vendor or the customs office:
  • your GST/HST Business Number;
  • a declaration signed by you stating that you intend to use the vessel in commercial fishing; and
  • a valid commercial limited-entry fishing licence number issued by Fisheries and Oceans Canada or a provincial or territorial government (licensing requirements may vary from region to region);
• the following nets and related equipment:
  • gill-nets, seines, and trawl-nets;
  • webbing, leadlines, corkline (top rope) for gill-nets, seines, and trawl-nets;
  • floats for gill nets and seines;
  • drums for gill-nets, seines, trawl-nets, and long-lines;
  • entrapment and predator webbing;
  • trawl-net doors; and
• the following equipment and products:
  • automatic baiters, jiggers, and net-pen feeders;
  • manufactured netpens for use in aquaculture; and
  • mechanical net washers and pescalators.

GST/HST registrants can claim an input tax credit for the GST/HST they paid or owe for purchases and expenses made to provide taxable goods and services at the rates of 0%, 7%, and 15% (0%, 6%, and 14% after June 30, 2006).

A limited number of goods and services you buy are exempt from GST/HST. Since you do not pay GST/HST on these goods and services, there is no input tax credit to claim. Furthermore, you cannot claim input tax credits for GST/HST you paid or owe for purchases or expenses made to provide exempt supplies and services.

Examples of exempt goods and services include:

• commercial fishing licence fees;
• insurance services sold by insurance companies, agents, or brokers;
• most services provided by financial institutions, such as arranging loans; and
• most health, medical, and dental services.

For more information, see Guide RC4022, General Information for GST/HST Registrants.

Index

A

• Accounting fees
• Accrual method
• Adjustment for current-year additions
• Advertising
• Allowance on eligible capital property

B

• Bait
• Base amount for capital cost allowance
• Benefits
• Business liabilities
• Business use of a motor vehicle
• Business-use-of-home expenses

C

• Capital cost allowance (CCA)
• CCA method
• CCA rates
• Capital contributions in 2006
• Capital gains
• Captains of fishing boats
• Cash method
• CCA for the year
• Changing from personal to business use
• Changing your method of reporting income
• Class number
• Compensation for loss of fishing income or property
• Cost of additions in the year
• Credits
• Crew shares
• Cumulative eligible capital (CEC) account

D

• Dates to remember
• Definitions
  • Automobile
  • Available for use
  • Business part only
  • Capital cost
  • Depreciable property
  • Fair market value (FMV)
  • Motor vehicle
  • Non-arm's length transaction
  • Passenger vehicle
  • Proceeds of disposition
  • Undepreciated capital cost (UCC)
• Details of other partners
• Drawings in 2006

E

• Electronic office equipment
• Eligible capital expenditures
• Eligible capital property
• Expense records

F

• Fiscal period
• Fishing boat owners
• Food
• Forms
• Freight expenses
• Fuel

G

• Gear
• Goods and services tax (GST) rebate
• Grants

H

• How do you calculate your fishing income?
• How to calculate your annual allowance

I

• Ice
• Income from related activities
• Income records
• Instalment payments
• Industry code
• Insurance
• Interest
• Interest on the money you borrow for a passenger vehicle
• Inventory method

J

• Joint ownership of a passenger vehicle

L

• Land
• Leasing costs
• Leasing costs for a passenger vehicle
• Leasehold interest
• Legal fees
• Licences
• Limited partnership
• Losses
  • Fishing
  • Non-capital

M

• More than one vehicle
• Motor vehicle expenses

N

• Net income (loss)
• Net income (loss) before adjustments
• Nets and traps
• Non-arm's length transactions

O

• Office expenses
• Other amounts deductible from your share of net partnership income (loss)
• Other expenses
• Other income
• Other marine products

P

• Partnerships
• Partnership losses
• Passenger vehicles
• Patronage dividends
• Paying debts with part of a catch
• Penalties
• Personal use of property
• Prepaid expenses
• Private health services plan (PHSP)
• Proceeds of dispositions in the year
• Professional fees
• Proprietorships
• Publications

R

• Rebates
• Recapture of CCA
• Record books
• Repairs
  • Electrical equipment
  • Engine
  • Fishing boat
• Replacement property
• Reserves

S

• Salaries
• Sale of eligible capital property
• Sale of property
• Salt
• Sharesperson income
• Sharespeople
• Small tools
• Sole proprietorships
• Special rates for certain boats
• Special rules for disposing of a building in the year
• Subsidies

T

• Telephone expenses
• Terminal loss
• Time limits
• Trucking expenses

U

• UCC after additions and dispositions
• UCC at the end of the year
• UCC at the start of the year
• Use of fishing boat mainly for personal use

W

• Wages
• What is a cumulative eligible capital (CEC) account?
• What is a partnership?
• What is an annual allowance?
• What is an eligible capital expenditure?
• What is CCA?
• What is fishing income?

Your opinion counts!

We review our income tax guides and pamphlets each year. If you have any comments or suggestions to help us improve our publications, we would like to hear from you!

Please send your comments to:

Taxpayer Services Directorate
Canada Revenue Agency
750 Heron Road
Ottawa ON   K1A 0L5