On November 25, 2019 Ervin sold 100 shares of Mighty Ltd., an eligible small business corporation, for $32 per share. He purchased the shares in 2018 for $28 per share. On December 15, 2019 he reinvested the proceeds by buying 80 shares of Mouse Ltd. for $40 per share. Mouse Ltd. is also an eligible small business corporation so he was able to use the ITA 44.1 election to defer the 2019 capital gains. Ervin sold all of the Mouse Ltd. shares on July 5, 2020 for $52 per share. His taxable capital gain for 2020 is:

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Quizplus · Accepted Answer

Ervin's initial capital gain in 2019 was deferred using ITA 44.1. In 2020, he sold the Mouse Ltd. shares for a gain of ($52 - $40) * 80 = $960. The deferred gain from 2019 was ($32 - $28) * 100 = $400. The total gain for 2020 is $960 + $400 = $1,360, with 50% being taxable, resulting in a taxable capital gain of $680.

On November 25, 2019 Ervin Sold 100 Shares of Mighty