By Gigi Suhanic
National Post
FP Money
Saturday, April 12, 2003

Question: How does my 1994 election for the $100,000 lifetime capital gain exemption affect my 2002 tax return?

Answer: Revisiting your 1994 income tax filing for the special election made to use all or part of the $100,000 capital gains exemption is beneficial, says Adrian Mastracci, president of KCM Wealth Management in Vancouver. That election increased the tax cost (ACB) of investments that you owned on Feb. 22, 1994, such as stocks, bonds, mutual funds and partnerships.

If you sold any of those investments during 2002, check your 1994 ACB elections on them. Be extra careful reporting taxable amounts from mutual funds that were included in the 1994 exemption.

The elected ACB from 1994 reduces your 2002 taxable capital gains or increases the loss.

Question: Are there still labour-sponsored funds, with credits from both Canada and Ontario?

Answer: Yes, tax credits are available on both levels and in some cases these credits have been increased, says Tom Zaks.

Like mutual funds, labour-sponsored funds use professional money managers. But unlike mutual funds that buy publicly listed stocks, labour-sponsored funds invest primarily in private Canadian companies, which are at various stages of development. Some companies are start-ups and others are about to go public.

The federal and provincial governments try to encourage people to invest in these companies by offering tax credits, which may be issued both federally and provincially, depending on the fund. The federal tax credit is 15% on the first $5,000 invested. Although some funds are sold nationally, some provinces have requirements to qualify for the provincial tax credit.

Only four provinces (including Ontario) offer a tax credit for funds operating on a national level. Ontario offers a 15% provincial tax credit on the first $5,000 invested. For research-based funds the Ontario government offers an additional 5% tax credit. To qualify for this extra credit, a fund must invest in businesses that spend approximately 50% of their expenses on scientific research and experimental development.

Question: If I buy stocks or units of a Canadian company listed on the New York Stock Exchange at pay dividends in U.S. dollars, as a Canadian resident and taxpayer, are the dividends I receive subject to U.S. withholding tax? Does the dividend tax credit apply?

Answer: As long as the company is a Canadian company then it doesn't matter on which exchange you buy your shares, says Jamie Golombek. The dividends you receive regardless of the fact they may be in U.S. dollars are not subject to U.S. withholding tax, and the Canadian dividend tax credit will still apply since they are shares of a Canadian corporation.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.