Tax - Ch8 Solutions II

Tax - Ch8 Solutions II - CHAPTER 8 GAINS AND LOSSES ON THE...

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Unformatted text preview: CHAPTER 8 GAINS AND LOSSES ON THE DISPOSITION OF CAPITAL PROPERTY—CAPITAL GAINS Solution to P 8-6 This problem emphasizes that the determination of capital gains and losses must be analyzed in conjunction with the restrictions of the aggregating formula for determining net income for tax purposes. The amounts and nature of income and losses for the year of departure are identified below followed by a summary in the form of the aggregating formula for net income. Small business corporation shares : Proceeds $ 70,000 ACB (100,000 ) Business investment loss [ITA 39(1)(c)] $ (30,000 ) Allowable business investment loss(1/2) [ITA 38(c)] $ (15,000 ) Salary from corporation (employment income) $ 75,000 Real estate: Rental loss ($14,000 - $17,000) $ (3,000 ) Capital gain $12,000 Taxable capital gain (1/2) $ 6,000 Loan to Small Business Corporation : The loan is uncollectible and is deemed to have been sold for a value of zero in the year in which it is established to be uncollectible [ITA 50(1)]. Proceeds (deemed) $ 0 ACB (10,000 ) Business investment loss [ITA 39(1)(c)] $(10,000 ) Allowable business investment loss (1/2) [ITA 38(c)] $ (5,000 ) The loan also has unpaid interest of $2,000 which Charles has previously accrued and included in property income for tax purposes. The unpaid interest can be deducted in accordance with the rules for income from property. As there is no interest income in the year, a property loss occurs $(2,000) [ITA 20(1)(p)]. Personal Home : Results in a capital gain of $30,000 which can be reduced to zero by the principal residence exemption, as Charles occupied the home for all the years that it was owned [ITA 40(2)(b)]. Sale of Other Properties : Personal use property [ITA 54, 46(1)]: Boat $10,000 - $14,000 = $(4,000), loss denied [ITA 40(2)(g)] NIL Furniture $6,000 - $21,000 = $(15,000), loss denied [ITA 40(2)(g)] NIL Piano $14,000 - $10,000 = $4,000 x ½ $2,000 Listed personal property [ITA 41(3), 54] Art ($3,000 - $1,000) * $ 2,000 Stamps ($16,000 - $20,000) (4,000) (2,000) $ Other properties: Public corporation X ($14,000 - $10,000) $4,000 Bond ($102,000 - $100,000) 2,000 $6,000 x ½ $3,000 Public corporation Y ($15,000 - $50,000) $(35,000) x ½ $(17,500 ) * $1,000 floor rule for proceeds and ACB of personal-use property [ITA 46(1)]. $1,000 floor rule for proceeds and ACB of personal-use property [ITA 46(1)]....
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This note was uploaded on 12/28/2011 for the course TAX 101 taught by Professor Mcgregor during the Fall '07 term at Wisc La Crosse.

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Tax - Ch8 Solutions II - CHAPTER 8 GAINS AND LOSSES ON THE...

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