Determine the income for tax purposes under division

Reference no: EM133655450

Client 1:

Barbie died on July 15, 2023. She is survived by her husband, Ken and her daughter Chelsea. WBW is the executor of her estate. One of your assigned responsibilities is to determine the tax treatment that results in the lowest possible tax on the estate in respect of the following items.

A rental property, purchased in 2009 with the following tax features, was left to Chelsea:
Asset Cost UCC- FMV-
Dec. 31/2022 July 15/2023
Land $39,000 N/A $120,000
Building 66,000 $36,000 168,000

The rental property generated net rental income of $5,300, before CCA, in the period from January 1, 2022 to July 15, 2023.
Barbie's will directed that 85 shares of Pink Fashion Ltd., a public corporation, that were purchased in 2013 for $17,300 be transferred to her husband. The shares had a fair market value of $38,700 on July 15, 2023. Barbie did not have any net capital losses available to offset the unrealized gain at the time of her death.
The following taxable dividends from a Canadian-controlled private corporation were declared in 2022 from its low-rate income, prior to her death, and paid in 2023, as indicated:
Declared

Paid

Amount

January 3

January 31

$305

April 6

April 30

330

July 5

July 31

360

Barbie's accounting practice, which had a December 31 year-end, generated $64,000 of income in the period in 2023 before her death.

Term life insurance of $100,000, to cover her business debts, was paid to Barbie's estate on her death.

Barbie had declared Ken a beneficiary for her RRSP. As a result, the $73,000 (fair market value) was paid to him.

Required:

Determine the income for tax purposes under Division B in a way that will result in the minimum possible tax consequences in the circumstances. Comment on the adjusted cost base or the tax position of the individuals who inherit property after giving effect to Barbie's will.

Reference no: EM133655450

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