Chapter 5 - Solution 1 (Basic) Silvias decision to sell her...

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Solution 1 (Basic) Silvia’s decision to sell her van and replace it with a leased van has a number of income tax implications. First, CCA class 10 is credited for the lower of cost or proceeds, or $10,300. The balance of $3,980 becomes a terminal loss (subsection 20(16)) in the year of disposition. UCC on van $14,28 Disposition Lesser of cost or proceeds 10,300 Terminal loss $3,980 Second, the lease payments are deductible in the current year, assuming an operating lease. Solution 3 (Advanced) 201 0 Acquisition of depreciable capital property on January 20, 2010: Lesser of [par. 13(7)( b )]: (i) FMV of the property at January 20, 2010 . ................................ $320,000 (ii) the total of: (A) original cost at the time of change in use . ............ $280,000 (B) FMV of the property at January 20, 2010 . ............................................................ $320,000 Less the original cost at the time of change in use . ........................................ 280,000 Excess, if any . ........................................ $40,000 ½ of the above excess, if any . .............................. 20,000 $300,000 Lesser amount = UCC at January 20, 2010 . ................................ $300,000 CCA claimed (½ $300,000 .04) [no short-year proration] . ...... (6,000) UCC at January 1, 2011 . .............................................................. $294,000 201 1 CCA claimed ($294,000 .04) . .................................................... $(11,760) UCC at January 1, 2012 . .............................................................. $ 282,240 201 2 Disposition of undepreciated capital property on June 1, 2012: Lesser of: • FMV of the property at June 1, 2012 [par. 13(7)( a )] $305,000 • capital cost . ............................................................ $300,000 lesser amount . .......................................................................... (300,000) Recapture included in income . ..................................................... $(17,760) Comments: (1) The purpose of this problem is to illustrate the application of the change-in-use rules on the calculation of capital cost allowance. It does not address the treatment of
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deductions for capital cost allowance in respect of rental property, nor does it address the principal residence exemption. (2) The impact of the change-in-use rules on the calculation of a capital gain or loss is as follows: January 20, 2010 disposition: Proceeds of disposition . ..................................... $320,000 Adjusted cost base . ............................................ (280,000) Capital gain . ....................................................... $ 40,000 June 1, 2012 disposition: Proceeds of disposition . ..................................... $305,000 Adjusted cost base (January 20, 2010 proceeds) . .......................................................... (320,000)
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Chapter 5 - Solution 1 (Basic) Silvias decision to sell her...

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