Reference no: EM133027771
Question - Several years ago, Ms. Katrina Bond acquired a business location that included land and a building for a total of $950,000. At the time, it was estimated that the value of the land was $220,000 and the value of the building was $730,000.
Ms. Bond operated the business for several years as a sole proprietorship and, during this period, she took CCA on the building. As there were years in which she experienced losses, she did not always take the maximum amount of CCA.
Ms. Bond has finally agreed to take your advice and incorporate the business. She will use ITA 85(1) to transfer the land and building to the new corporation in January, 2020. At the time of the transfer, the building had a UCC of $625,000. Other relevant values were as follows:
|
Asset
|
Tax Cost
|
Appraised Value
|
Elected Amount
|
|
Land
|
$220,000
|
$510,000
|
$220,000
|
|
Building
|
625,000
|
980,000
|
730,000
|
|
Total
|
$845,000
|
$1,490,000
|
$950,000
|
In addition, the new corporation will issue $900,000 in new debt to Ms. Bond. The remaining consideration will be in the form of common shares with a fair market value and legal stated capital of $590,000.
Required -
A. Are the elected or agreed amounts acceptable?
B. Compute the adjusted cost base of each component of the consideration that Ms. Bond has received from the corporation.
C. Compute the PUC of the corporation's newly issued common shares.
D. How much capital gain was deferred as a result of using sec 85.
E) What are the tax implications for MS Bond on the transfer of the two properties?