Barry Hicks owns a building with a capital cost of $200,000, a UCC balance of $150,000, and a fair market value of $600,000. This property is transferred to a corporation under the provisions of ITA 85(1). The corporation assumes the $50,000 mortgage on the building. In return for the building, Barry receives a promissory note for $40,000 and preferred shares with a fair market value of $510,000. If Barry elects a value that will maximize tax deferral, the adjusted cost base of the preferred shares is:
A)nil.
B)$60,000.
C)$110,000.
D)$600,000.

Question

Quizplus · Accepted Answer

To maximize tax deferral under ITA 85(1), Barry should elect the transfer value at the UCC of $150,000. The adjusted cost base (ACB) of the preferred shares is calculated as the elected amount ($150,000) minus the mortgage assumed ($50,000) and the promissory note ($40,000), resulting in an ACB of $60,000.

Barry Hicks Owns a Building with a Capital Cost of $200,000