The questions below are based on the following information:
Ramon lives in Calgary. In 2017 he purchased a second house in Lethbridge for $180,000 (land $100,000; building $80,000). His grandmother lives in the house rent free and was the only occupant from 2017 to 2020. In March 2020, Ramon converted the house into a duplex. His grandmother lives in one unit rent free and the other unit is rented to tenants. The market value of the house in March 2020 was $215,000 (land $115,000; building $100,000).
-What is Ramon's taxable capital gain for the 2020 change in use? He will not use his principal residence gain reduction for the Lethbridge house.

Question

Quizplus · Accepted Answer

To calculate the taxable capital gain, we need to determine the adjusted cost base (ACB) of the property at the time of conversion. The ACB is the original cost plus any improvements made, minus any depreciation claimed.

Original cost of property = $180,000
Improvements made = $0
Depreciation claimed = $0

Therefore, the ACB of the property at the time of conversion is $180,000.

The fair market value (FMV) of the property at the time of conversion is $215,000.

The difference between the FMV and the ACB is the taxable capital gain:

Taxable capital gain = FMV - ACB
Taxable capital gain = $215,000 - $180,000
Taxable capital gain = $35,000

However, since Ramon is not using his principal residence gain reduction for the Lethbridge house, the taxable capital gain is reduced by 50%.

Taxable capital gain (after reduction) = $35,000 / 2
Taxable capital gain (after reduction) = $17,500

Therefore, Ramon's taxable capital gain for the 2020 change in use is $17,500, which is option B.

The Questions Below Are Based on the Following Information