Deck 8: Gains and Losses on the Disposition of Capital Property-Capital Gains

Question 1

Which of the following rules regarding the tax treatment of a principal residence is FALSE?

A) If a taxpayer only owns one residence, the 'principal residence formula' reduces any capital gain on the sale to nil.
B) When a taxpayer owns more than one residence, the decision to designate a particular property as the 'principal residence' occurs at the time of sale.
C) Properties can be designated to each married or common-law partner in a family for the purpose of reducing the gains on the sale of two principal residences.
D) A capital loss cannot be realized on the sale of a principal residence.

Answer 1

C

Question 2

When establishing whether the sale of an asset is capital income or business income, which of the following is not one of the factors typically taken into consideration when determining the primary intention of a transaction?

A) Period of ownership
B) Payment terms of the sale
C) Number and frequency of transactions
D) Relation of transaction to taxpayer's business

Answer 2

B

Question 3

Mr. Yee sold a piece of land in 20x0 for $500,000. He originally paid $100,000 for the land. Selling costs totaled $15,000. The land is classified as capital property. The purchaser of the land paid Mr. Yee $80,000 in 20x0 and will pay $84,000 each year for the next five years.
Required:
Calculate the taxable capital gain that Mr. Yee will have to include in his income for tax purposes in 20x0 and 20x1.

Answer 3

Question 4

Anne Smith acquired her house in 20x0 for $150,000 and her cottage in 20x4 for $100,000. Due to a rise in real estate prices, she has decided to sell both properties and backpack around the world for two years. Both properties were sold in October of 20x8. Anne received proceeds of $375,000 for the house, and $250,000 for the cottage.
Required:
Calculate the minimum taxable capital gain that Anne will report for her house and her cottage on her 20x8 tax return. Show all calculations, identifying the taxable capital gain for each property.

Question 5

The following cases pertain to some of the unique aspects regarding the sale of various types of capital properties. Next to each case, identify the type of capital property from the list provided. (Select only one category of capital property for each case and use each category only once.)

Question 6

Sarah Green purchased a piece of land in 20x8 with plans to build and operate a greenhouse and evergreen nursery. Sarah is a full-time teacher but has always dreamed of also running her own business. It is now 20x9 and Sarah has not yet started her business, and upon receiving an offer to teach on a tropical island, has decided to sell the land. Which of the following statements is TRUE?

A) Sarah's primary intent suggests that the income should be treated as a business transaction.
B) Sarah purchased the land with the primary intent to resell it at a profit.
C) Sarah purchased the land with the primary intent to recognize a long-term economic benefit.
D) The intent of the purchase is insignificant when determining the type of taxable income to report.

Question 7

John sold a piece of land in 20x9 for $350,000. The land was recognized as capital property. The original cost of the land was $75,000. The selling costs incurred in 20x9 were $5,000. The terms of the payment included an immediate down payment of $50,000, with the remainder of the cost to be paid over the next three years in three equal payments. John wishes to report the minimum taxable capital gain allowed each year. How much will he report in 20x9? (Round all numbers to zero decimal places.)

A) $0
B) $27,000
C) $135,000
D) $216,000

Question 8

Greta Snow sold the following items prior to moving to Europe:
Required:
Calculate the amount of taxable income from Greta's sales, identifying the appropriate categories of capital property.

Question 9

Mandy holds shares in Y Co. Recently, the shares have been experiencing a decline in market value. She originally purchased 1000 shares in 20x0 at $5 per share. On September 22^nd of 20x1 she sold the shares when they were trading for only $3 per share. On October 3^rd she felt optimistic that the market value would rise substantially by the end of the year, so she repurchased 1000 shares of Y Co. at $2.50 per share. Which of the following is true for Mandy?

A) Mandy can recognize a $2,000 capital loss on the sale of her shares on her 20x1 tax return.
B) Mandy can recognize a $2,000 superficial loss on the sale of her shares on her 20x1 tax return.
C) The adjusted cost base of Mandy's new shares is $4,500.
D) The adjusted cost base of Mandy's new shares is $2,500.