Deck 8: Gains and Losses on the Disposition of Capital Propertycapital Gains

Question 1

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

Answer 1

Question 2

Havana Pérez purchased a piece of land in 2019 with plans to build and operate a greenhouse and evergreen nursery.Havana is a full-time teacher but has always dreamed of running a business.It is now 2020 and Havana has not yet started a 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)Havana's primary intent suggests that the income should be treated as a business transaction.
B)Havana purchased the land with the primary intent to resell it at a profit.
C)Havana 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.

Answer 2

C

Question 3

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

A)If a taxpayer sells the only home they have ever owned for a gain, the capital gain on the sale is 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.

Answer 3

C

Question 4

Tiny Nurseries Ltd.is a Canadian controlled private corporation operating in your province.The company has a December 31^st year-end.
Three asset sales occurred prior to the end of 2019.
Asset 1: Building
The building was previously purchased for $90,000.At the time of the sale in 2019, 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 2019 for $250,000.The terms of the sale included $60,000 which was received in 2019, with eight equal installments to follow beginning in 2020.
Asset 3: Marketable Securities
The company sold its entire public portfolio in 2019.The adjusted cost base of the shares was $100,000.The market value of the shares at the time of sale in 2019 was $135,000.Selling costs on the sale were $5,000.
Required:

A) Calculate Tiny Nurseries Ltd.'s minimum taxable capital gain for 2019.
B) Calculate Tiny Nurseries Ltd.'s minimum taxable capital gain for 2020.

Question 5

Julie Olsen purchased a home in 2012 for $150,000 and a cottage in 2016 for $100,000.Due to a rise in real estate prices, Julie decided to sell both properties and backpack around the world for two years.Both properties were sold in October of 2020.Julie received proceeds of $375,000 for the house, and $250,000 for the cottage.
Required:
Calculate the minimum taxable capital gain that Julie will report for the house and cottage on the 2020 tax return.Show all calculations, identifying the taxable capital gain for each property.

Question 6

When establishing whether the sale of an asset is capital income or business income, which of the following is not one of the factors typically taken into consideration to determine the primary intention of a transaction?

A)Period of ownership
B)Payment terms of the sale
C)Number and frequency of transactions
D)Relation of transaction to taxpayer's business

Question 7

Emily Spring sold the following items prior to moving to Europe.
$$\begin{array} { | l | r | r | } \hline { \text { Asset } } & \text { Originnl Cast } & \text { Pruceeds uf Dispusitim } \\\hline \text { Sportscar } & \$ 24,000.00 & \$ 10,000.00 \\\hline \text { Antiquue cabinet } & \$ 1,000.00 & \$ 2,000.00 \\\hline \text { A rare coin } & \$ 100.00 & \$ 1,100.00 \\\hline \text { Shares in a public corporation } & \$ 4,000.00 & \$ 3,000.00 \\\hline \text { Canoe } & \$ 500.00 & \$ 600.00 \\\hline \text { Limmited edition painting } & \$ 800.00 & \$ 2,500.00 \\\hline \text { Seulpture } & \$ 1,100.00 & \$ 900.00 \\\hline\end{array}$$
Required:
Determine the total taxable income from Emily's sales, identifying the appropriate categories of capital property.

Question 8

Angel Ramos received the following income in 2020:

Required:
Determine Angel's net income for tax purposes for 2020 in accordance with the aggregating formula of Section 3 of the Income Tax Act.(CPP for enhanced contribution = $166.)

Question 9

Duane Uba sold the shares of an arm's-length small business corporation in 2020, resulting in a capital loss of $2,000.If all of the conditions for an allowable business loss are met, Duane will recognize which of the following?

A)ITA 3(d) deduction of $1,000 in 2020.
B)ITA 3(b) deduction of $2,000 in 2020.
C)ITA 3(b) gain of $1,000 in 2020.
D)ITA 3(d) loss of $2,000 in 2020.

Question 10

Sasha Ivanov gifted Canadian public securities to a public charity in 2020.The securities had a market value of $22,000 and an ACB of $8,000.Sasha is in a 40% tax bracket.Which of the following will apply to Sasha?

A)Sasha will have a capital gain of $14,000 and receive a donation receipt for $14,000.
B)Sasha will have a capital gain of $14,000 and receive a donation receipt for $5,600.
C)Sasha will have a capital gain of $0 and receive a donation receipt for $14,000.
D)Sasha will have a capital gain of $0 and receive a donation receipt for $22,000.

Question 11

Dakota Martin sold a piece of land in 2020 for $350,000.The land was recognized as capital property.The original cost of the land was $75,000.The selling costs incurred in 2020 were $5,000.The terms of the payment included an immediate down payment of $50,000, with the remainder of the cost to be paid over the next three years in three equal payments.Dakota wishes to report the minimum taxable capital gain allowed each year.What is the taxable capital gain for 2020? (Round all amounts to zero decimal places.)

A)$0
B)$27,000
C)$54,000
D)$135,000

Question 12

Giang Ngo sold a piece of land in 2019 for $500,000.The original cost of the land was $100,000.Selling costs totaled $15,000.The land qualifies as capital property.The purchaser of the land paid Giang $80,000 in 2019 and will pay $84,000 each year for the next five years.
Required:
Calculate the minimum taxable capital gain that Giang will include in income for tax purposes for 2019 and 2020.

Question 13

Rayyan Kouri purchased 1000 shares in TRI Co.in 2019 for $5 per share.Due to a decline in market value Rayyan sold the shares on September 22, 2020, when they were trading for $3 per share.On October 3, 2020, Rayyan repurchased 1000 shares of Y Co.at $2.50 per share.Which of the following is true for Rayyan?

A)Rayyan can recognize a $2,000 capital loss on the sale of the shares in the 2020 tax year.
B)Rayyan can recognize a $2,000 superficial loss on the sale of the shares in the 2020 tax year.
C)The adjusted cost base of Rayyan's new shares is $4,500.
D)The adjusted cost base of Rayyan's new shares is $2,500.