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Homework answers / question archive / Question #6Ms
Question #6Ms. Veronica Lox owns securities with an adjusted cost base of $150,000 and a fair market value of $175,000. Shesells these securities to her father for $210,000. He immediately sells them to an arm’s length party for $175,000. Determine the tax consequences for Ms. Lox and her father.
Ms. Lox will have a taxable capital gain of $30,000 [(1/2)($210,000 - $150,000)]. This is based on the actualproceeds of disposition.As the transfer is for $210,000, a value that is more than the fair market value of $175,000, ITA 69 limits thefather’s adjusted cost base to the fair market value. This means that when he sells the securities for $175,000, hewould have no gain or loss
