Martha purchased 10,000 common shares in 2010 of SENEDGE INC, a CCPC at $12 per
ID: 2594049 • Letter: M
Question
Martha purchased 10,000 common shares in 2010 of SENEDGE INC, a CCPC at $12 per share. Martha gifts her husband 5000 shares and her 14 year old daughter 5000 common shares in 2012, when the common share FMV was $13.
Near the end of Dec 2015, SENEDGE INC gave out dividends $1 for each share. The husband and daughter both sell all their shares in 2016 at $16
Determine the taxable income to each individual for each case, write nil if zero
A) Common shares gifted
B) Dividends received 2015
C) Shares sold at 2016
A) Martha Husband Daughter
B)
C)
Explanation / Answer
A. When shares are gifted to spouse or children, no capital gains arise in the hands of the either of the parties. Capital gains will arise only when the stocks are finally sold by the recipient. Cost basis of stocks will be the amount paid by the original owner of the stocks.
Martha Husband Daughter
No income is taxable on transfer of stocks. Taxable income is $0
Taxable income is $0
Taxable income is $0
B. Dividends are taxable in hands of person to whom stocks have been transferred.
Martha Husband Daughter
Taxable income of $5,000 as dividends received by husband
Taxable income of $5,000 as dividends received by child
C. Shares sold lare taxable in the hands of recipient of stocks. Adjusted basis of stocks will be basis in stocks of original owner i.e Martha.
Martha Husband Daughter
Taxable Income = ($16 x 5,000) - (5,000 x 12) = $20,000
Taxable Income = ($16 x 5,000) - (5,000 x 12) = $20,000
No income is taxable on transfer of stocks. Taxable income is $0
Taxable income is $0
Taxable income is $0
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