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School

Grant MacEwan University *

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Course

328

Subject

Accounting

Date

Jun 21, 2024

Type

xlsx

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Uploaded by tom444

ACCT 328 Business Income Mr. Ludvig disposed of a capital property for $100,000 on July 1, Year 1. The sales proceeds are payable in 3 instalments: $30,000 at the time of the sale, $35,000 on July 1, Year 2 and $35,000 on Ju Other information: The ACB of the property for Mr. Ludvig was $20,000 Required: Calculate the capital gain that will be reported, if any, by Mr. Ludvig in Years 1, 2 and 3. Solution: In each year the reserve is the lesser of: (i) (POD not received in year/total POD) x capital gain; or (ii) (20%)(capital gain)(4 - number of preceding taxation years after disposition) Calculation of Capital Gain: Year 1 Year 2 Year 3 Proceeds of disposition $ 100,000 Adjusted cost base $ (20,000) Capital Gain $ 80,000 $ 56,000 $ 28,000 for years 2 & 3, the prio Capital Gains reserve $ (56,000) $ (28,000) $ - Net capital gain $ 24,000 $ 28,000 $ 28,000 Inclusion rate 0.50 0.50 0.50 Taxable capital gain $ 12,000 $ 14,000 $ 14,000 Total Taxable Capital Gain (over 3 years) $ 40,000 equivalent to the total t

uly 1, Year 3. Year 1 Year 2 Year 3 $ 56,000 $ 28,000 NA $ 64,000 $ 48,000 NA NOTE: No capital gains reserve is allowed in year 3 as all proceeds have been received by end of year 3. or year's reserve is included in income as a capital gain taxable capital gain on sale of property [(100,000 - 20,000) x 1/2]

ACCT 328 Business Income Sarah Smith purchased some vacant land on February 1, Year 1 for $30,000, hoping to build a on the land when she had saved enough money for construction of the cabin. While she was saving her money, Sarah rented the land in Year 1 (entire year) to a farmer as for an annual rent of $1,000. During this year, Sarah also paid $300 in property taxes and $4,000 in interest on funds borrowed to purchase the land. At the beginning of Year 2, construction began on a six-lane highway that will intersect the neighbouring property to Sarah’s vacant land. Due to the close proximity of the new highway, Sarah decided to sell the land for proceeds of disposition of $20,000. and Year 2 resulting from the transactions described above. Solution: In Year 1, Sarah rented the land: Gross rents $1,000 Less rental expenses $4,300 property tax and interest Excess costs ($3,300) This excess property tax and interest wil Sarah will report net rental income/loss of nil. In year 2, Sarah sold the land: Calculation of Capital Gain: Year 2 Proceeds of disposition $ 20,000 Adjusted cost base $ (33,300) Capital Gain (loss) $ (13,300) Capital Gains reserve $ - Capital Loss $ (13,300) Inclusion rate 0.50 Allowable capital loss $ (6,650) Required : Calculate the Net Income (Loss) For Tax Purposes to be reported for each of Year 1

a cabin pasture f ll be added to the cost base of the land

ACCT 328 Business Income Mr. X has incurred a large amount of capital gains during the year. Therefore, Mr. X decides to sell securities with an accrued loss during the year, which will offset his large capital gain balance on his tax return (in order to reduce his overall net income for tax purposes). On December 1 of the current year, Mr. X sells securities with an adjusted cost base of $15,000 for proceeds of disposition of $10,000. In the long term Mr. X thinks these securities will increase in value and would like to hold on to them for their potential future earnings; therefore, Mr. X purchases identical securities on December 15, of the current year for $8,000. Solution: Proceeds of disposition $10,000 Adjusted cost base ($15,000) Capital Loss ($5,000) Superficial loss Reported on tax return $0 Loss is denied Instead the denied loss is added to the cost base of the new property: ACB (new) $8,000 Superficial loss $5,000 New ACB $ 13,000 Required : Calculate the tax impact of Mr. X's transactions.

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