Deck 8: Gains and Losses on the Disposition of Capital Property-Capital Gains

Question 1

Anne Smith acquired her house in 20x0 for $150,000 and her cottage in 20x4 for $100,000. Due to a rise in real estate prices, she has decided to sell both properties and backpack around the world for two years. Both properties were sold in October of 20x8. Anne received proceeds of $375,000 for the house, and $250,000 for the cottage.
Required:
Calculate the minimum taxable capital gain that Anne will report for her house and her cottage on her 20x8 tax return. Show all calculations, identifying the taxable capital gain for each property.

Answer 1

The capital gain on the cottage should be eliminated first as it will receive a higher exemption per year ($30,000) than the house ($25,000).

Question 2

Mr. Yee sold a piece of land in 20x0 for $500,000. He originally paid $100,000 for the land. Selling costs totaled $15,000. The land is classified as capital property. The purchaser of the land paid Mr. Yee $80,000 in 20x0 and will pay $84,000 each year for the next five years.
Required:
Calculate the taxable capital gain that Mr. Yee will have to include in his income for tax purposes in 20x0 and 20x1.

Answer 2

Question 3

Greta Snow sold the following items prior to moving to Europe:
Required:
Calculate the amount of taxable income from Greta's sales, identifying the appropriate categories of capital property.

Answer 3

Personal Use Property Listed Personal Property *As per ITA 46(1) to (3) Financial Property $1,000 (PUP Gain) + $1,500 (Net LPP Gain) - $1,000 (Financial Loss) = $1,500 Capital Gain = $750 Taxable Capital Gain

Question 4

Which of the following rules regarding the tax treatment of a principal residence is FALSE?

A) If a taxpayer only owns one residence, the 'principal residence formula' reduces any capital gain on the sale to nil.
B) When a taxpayer owns more than one residence, the decision to designate a particular property as the 'principal residence' occurs at the time of sale.
C)Properties can be designated to each married or common-law partner in a family for the purpose of reducing the gains on the sale of two principal residences.
D) A capital loss cannot be realized on the sale of a principal residence.

Question 5

The following cases pertain to some of the unique aspects regarding the sale of various types of capital properties. Next to each case, identify the type of capital property from the list provided. (Select only one category of capital property for each case and use each category only once.)
List of capital properties:
1. Identical properties
2. Options
3. Commodities and futures transactions
4. Voluntary and involuntary dispositions
5. Eligible small-business investments
6. Gifts of Canadian public securities

Question 6

Sarah Green purchased a piece of land in 20x8 with plans to build and operate a greenhouse and evergreen nursery. Sarah is a full-time teacher but has always dreamed of also running her own business. It is now 20x9 and Sarah has not yet started her business, and upon receiving an offer to teach on a tropical island, has decided to sell the land. Which of the following statements is TRUE?

A) Sarah's primary intent suggests that the income should be treated as a business transaction.
B) Sarah purchased the land with the primary intent to resell it at a profit.
C)Sarah purchased the land with the primary intent to recognize a long-term economic benefit.
D) The intent of the purchase is insignificant when determining the type of taxable income to report.

Question 7

Evergreen Trees Inc. is a CCPC operating in your province. The company has a December 31^st year-end.
Three asset sales occurred prior to the end of 20x1. The following information pertains to the net gain on the sale of the assets.
Asset 1: Building
The building was previously purchased for $90,000. At the time of the sale in 20x1, the accumulated amortization on the building was $10,000. The UCC balance was $65,000. The full payment of $110,000 was received before the end of the year.
Asset 2: Land
The land was purchased for $200,000 and sold in 20x1 for $250,000. Proceeds of $60,000 will be received this year. The remainder of the payment will be received in equal installments over the next eight years.
Asset 3: Marketable Securities
The company sold its entire public portfolio this year. The adjusted cost base of the shares was $100,000. The market value of the shares at the time of sale in 20x1 was $135,000. Selling costs on the sale were $5,000.
Required:

A) Calculate Evergreen Trees Inc.'s minimum taxable capital gain for 20x1.
B) Calculate Evergreen Trees Inc.'s minimum taxable capital gain for 20x2.