Martha Stuart has a depreciable asset with a UCC of $50,000, a capital cost of $80,000, and a fair market value of $100,000. If she gifts this property to her spouse without making any election, she will have a capital gain of $50,000.

Question

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The capital gain would be calculated based on the difference between the fair market value ($100,000) and the capital cost ($80,000), which is $20,000, not $50,000. However, for tax purposes, when gifting to a spouse, the transfer is generally considered to occur at the asset's adjusted cost base (ACB) or undepreciated capital cost (UCC), not its fair market value, to defer the capital gain until the spouse disposes of the asset.

Martha Stuart Has a Depreciable Asset with a UCC of $50,000