Derek Blunt wishes to transfer a non-depreciable capital property to a corporation that is owned by his adult daughter. The corporation is a new corporation, established with an investment of $100 in cash. Derek's daughter holds all of the common shares in this new corporation.
At the time of its transfer to the corporation, the non-depreciable capital property has an adjusted cost base of $250,000 and an estimated fair market value of $400,000. The transfer is made at an elected value of $250,000, with Derek receiving the corporation's note for $250,000, as well as preferred shares with a legal stated capital and fair market value of $150,000. A CRA reassessment of this transaction determines that the actual fair market value of the property transferred is $475,000. Mr. Blunt reluctantly accepts this value.
After the reassessment, Derek and his daughter both sell their shares in the new corporation for their fair market value.
Describe the tax consequences of these transactions for both Mr. Blunt and his daughter. How would these tax consequences differ if Mr. Blunt had simply sold the non-depreciable capital property for its post-reassessment fair market value of $475,000?

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The Answer of Derek Blunt wishes to transfer a non-depreciable capital property to a corporation that is owned by his adult daughter. The corporation is a new corporation, established with an investment of $100 in cash. Derek's daughter holds all of the common shares in this new corporation.
At the time of its transfer to the corporation, the non-depreciable capital property has an adjusted cost base of $250,000 and an estimated fair market value of $400,000. The transfer is made at an elected value of $250,000, with Derek receiving the corporation's note for $250,000, as well as preferred shares with a legal stated capital and fair market value of $150,000. A CRA reassessment of this transaction determines that the actual fair market value of the property transferred is $475,000. Mr. Blunt reluctantly accepts this value.
After the reassessment, Derek and his daughter both sell their shares in the new corporation for their fair market value.
Describe the tax consequences of these transactions for both Mr. Blunt and his daughter. How would these tax consequences differ if Mr. Blunt had simply sold the non-depreciable capital property for its post-reassessment fair market value of $475,000?

Derek Blunt Wishes to Transfer a Non-Depreciable Capital Property to a Corporation