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Question #10On December 31, 2018, Mr
Question #10On December 31, 2018, Mr. Tom London gives shares with an adjusted cost base of $21,500 and a fair market valueof $35,200 to his 9 year old son, Patrick London. On February 24, 2019, the shares pay eligible dividends of $2,060($2,843 taxable amount) and, on August 31, 2019, Patrick sells the shares for $39,800. What are the taxconsequences for Mr. London and Patrick in each of the years 2018 and 2019? If there are no tax consequences foreither individual in a given year, you should clearly state this fact in your answer
Expert Solution
There is no provision for a tax free transfer of shares to a child. The tax consequences for Tom and Patrick Londonfor the two years can be outlined as follows:? 2018 for Patrick - none.
? 2018 for Tom - a taxable capital gain of $6,850 [(1/2)($35,200 - $21,500)].? 2019 for Patrick - a taxable capital gain of $2,300 [(1/2)($39,800 - $35,200)].? 2019 for Tom - taxable dividends of $2,843 attributed to him.
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