chap16 - CHAPTER 16 Income Deferral: Rollover on Transfers...

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Unformatted text preview: CHAPTER 16 Income Deferral: Rollover on Transfers to a Corporation and Pitfalls Problem 1 [ITA: 85(1)] The following assets are to be transferred under section 85 for consideration including common shares plus boot as indicated below: Fair market value A.C.B./ Capital cost/ E.C.E. U.C.C./ C.E.C. Boot Land. ............................. $ 75,000 $ 60,000 $ 50,000 Marketable securities. ... 65,000 55,000 60,000 Building*. ..................... 95,000 85,000 $ 70,000 55,000 Equipment. .................... 50,000 65,000 40,000 45,000 Furniture and fixtures. ... 10,000 15,000 7,000 5,000 Licence**. ..................... 100,000 82,500 60,000 15,000 * Only asset in class. ** Indefinite life. REQUIRED (A) Compute the minimum possible elected amounts. (B) Compute the effects on income. (C) Indicate the maximum boot that should be taken to maximize the deferral of taxation. 135 Introduction to Federal Income Taxation in Canada Solution 1 Min. elected amount Income Max. boot Land 1 ........................................................................................... $ 60,000 Nil $ 60,000 Marketable securities 2 ................................................................. 60,000 $ 2,500 55,000 Building 3 ..................................................................................... 70,000 Nil 70,000 Equipment 4 ................................................................................. 45,000 5,000 40,000 Furniture and fixtures 5 ................................................................ 7,000 Nil 7,000 Licence 6 ...................................................................................... 80,000 Nil 80,000 NOTES TO SOLUTION (1)(a) Minimum elected amount: Greater of: (i) F.M.V. of boot. ................................................................................................ $ 50,000 (ii) Lesser of: (A) F.M.V. of property. ............................................................ $ 75,000 $ 60,000 (B) A.C.B. ................................................................................ $ 60,000 (b) Income: Proceeds. ......................................................................................................................... $ 60,000 Cost. ................................................................................................................................ (60,000) Capital gain/loss. ............................................................................................................. Nil (2)(a) Minimum elected amount: Greater of: (i) F.M.V. of boot. ................................................................................................ $ 60,000 (ii) Lesser of: (A) F.M.V. of property. ............................................................ $ 65,000 $ 55,000 (B) A.C.B. ................................................................................ $ 55,000 (b) Proceeds. ......................................................................................................................... ....
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chap16 - CHAPTER 16 Income Deferral: Rollover on Transfers...

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