Reference no: EM132472286

Point 1: Barbara Barns owned 200,000 shares of DEF Ltd., a publicly traded Canadian corporation. These shares, including brokerage fees, were acquired at a cost of $400,000. Based on current trading values, these shares are now worth $950,000.

Point 2: The following four cases make different assumptions as to the identity of the purchaser, the circumstances of the sale, and the proceeds of disposition. In each case, assume that the purchaser immediately resold the shares for their fair market value of $950,000.

Case 1

• Barbara Barns sold the shares to her sister for $100,000 loss, as Barbara Barns had realized significant capital gains during the current year. Since her sister had no other source of income, Barbara's sister would be taxed on the gain from the resale at the minimum federal rate.

Case 2

• Barbara Barns' father had realized a large amount of capital gains during the current year. To help her father, Barbara Barns sold the shares to him for $1,400,000. Barbara's father planned to use the loss on the immediate resale to offset his capital gains.

Required

Problem 1: For each of the cases, advise Barbara Barns of the tax consequences that will result from the disposition, and indicate the tax consequences to the purchaser of the shares when they are resold. In addition, in each case, indicate whether the stated tax planning objective was achieved.