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Question #8During the current year, Geoff Lionel transferred a depreciable property to his spouse
Question #8During the current year, Geoff Lionel transferred a depreciable property to his spouse. The property had a fairmarket value of $200,000, a capital cost of $160,000, and a UCC of $107,000. It is the only asset in its CCA class. In return for the property, his spouse pays $200,000 from funds that she has received as an inheritance. Describethe tax consequences to Mr. Lionel and the tax cost of the property to his spouse after the transfer, assuming that hedoes not elect out of ITA 73(1). How would these results differ if Mr. Lionel elects out of ITA 73(1)?
Expert Solution
ITA 73(1) Applies If Mr. Lionel does not elect out of ITA 73(1), the property will be transferred at the UCC of$107,000. There would be no tax consequences at the time of transfer.While the spouse would receive the property with a UCC of $107,000, the capital cost of $160,000 would beretained, with the difference being considered deemed CCA. The $200,000 proceeds of disposition do not affectthese results.Elect Out Of ITA 73(1) Mr. Lionel can elect out of ITA 73(1) by including in his income a taxable capital gain of$20,000 [(1/2)($200,000 - $160,000)], as well as recapture of $53,000 ($160,000 - $107,000).For capital gains purposes, the capital cost to the spouse would be $200,000. However, for CCA and recapturecalculations, ITA 13(7)(e) would deem the capital cost to the spouse to be $180,000 [$160,000 + (1/2)($200,000 -$160,000)]
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