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David
I left a job as an advisor with a mutual fund company. I am allowed to
sell my book of clients (my business) to the company and they pay me over
the next few months. I would love to be able to claim this as a Capital
Gain rather than pay full bore as income. Is this possible? How would we
establish my ACB? I was not incorporated, but I wonder if I can view this
as an asset that I sold back to the company that they will pay for over the
next few months?
Do I make sense? Have I had too much egg nog?
Thanks for your help!
XXXXXXXXXXXX
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david ingram replies:
No problem. Lists of Clients or a "book" of clients are generally accepted as a capital gain when sold as a one time action by an individual.
Your ACB will be zero unless you paid something for someone else's book in the first place.
So if you started with Zero and the company is buying it from you for $30,000, your capital gain is $30,000 and your taxable capital gain is 50% of that or $15,000.
And if the payment is spread out, you can pay the tax over the period of time it is spread over to a maximum of 5 years. So in the case above, if they were going to pay you $6,000 a year for five years, you would pay tax on $3,000 a year for five years. The gain is calculated on schedule 3 and the result goes on line 127 of the T1 tax return. However, if it was being paid over 10 or 15 years, you can only spread it over five years and this causes hardship for people because they can find themselves owing almost as much tax as the payment they got (or so it seems) in the first few years.
If they are paying interest on it, the interest is taxable at full rates on line 1`22 and it is necessary to separate the amounts out.
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