The following assets are to be transferred under section ITA 85 for consideratio

Question

The following assets are to be transferred under section ITA 85 for consideration including common shares plus non-share consideration (NSC or "boot") as indicated below Adjusted Cost Base (ACB) Undepreciated Capital Cost Capital Cost Eligible Capital Expenditure (ECE) Cumulative Eligible Capital (CEC) Non-share consideration (NSC) or Fair Market Value (FMV) 100,000 220,000 400,000 "boot" (1) Marketable securities (2) Land (3) Building 70,000 190,000 300,000 50,000 210,000 230,000 270,000 (only asset in the class) (only asset in the class) (only asset in the class) (indefinite useful life) 60,000 40,000 70,000 (4) Machinery (5) Computers (6) Licence 55,000 28,000 25,000 30,000 20,000 50,000 30,000 60,000 15,000 Required: A) Compute the minimum possible elected amounts. B) Compute the effects on income with ITA 85 election with the actual non-share consideratiorn (NSC or "boot") mentioned. Indicate the maximum non-share consideration (NSC or "boot") that should be taken to maximize the deferral of taxation C)

Explanation / Answer

LAND (1)

MARKETABLE SECURITIES(2)

BUILDING(3)

MACHINERY (4)

COMPUTERS(5)

LICENCE (6)

NOTES TO SOLUTION

GREATER OF

            

              b) Income:-

Proceeds---------------------------------------------------------------------------------------------------$210000

Cost -------------------------------------------------------------------------------------------------------$ 190000

CapitalGain/loss         ----------------------------------------------------------------------------------$ 20000

GREATER OF

            

              b) Income:-

Proceeds---------------------------------------------------------------------------------------------------$70000

Cost -------------------------------------------------------------------------------------------------------$ 70000

CapitalGain/loss         ----------------------------------------------------------------------------------$ nil

GREATER OF

            

              b) Income:-

Proceeds---------------------------------------------------------------------------------------------------$270000

Cost -------------------------------------------------------------------------------------------------------$ 300000

TaxableCapitalGain/loss         -----------------------------------------------------------------          $NIL

Terminal Loss/Recapture:

UCC-----------------------------------------------------------------$270000

Less: Lesser of i) Capital Cost ---------$300000

                            ii) Proceeds----------$ 270000                  $ 270000

                                                                                                      nil

GREATER OF

            

              b) Income:-

Proceeds---------------------------------------------------------------------------------------------------$30000

Cost -------------------------------------------------------------------------------------------------------$ 60000

CapitalGain/loss         ----------------------------------------------------------------------------------$NIL

Terminal Loss/Recapture:

UCC-----------------------------------------------------------------$40000

Less: Lesser of i) Capital Cost ---------$60000

                            ii) Proceeds----------$ 30000                $ 30000

                                                                                            $ 10000

GREATER OF

            

              b) Income:-

Proceeds---------------------------------------------------------------------------------------------------$25000

Cost -------------------------------------------------------------------------------------------------------$ 28000

CapitalGain/loss         ----------------------------------------------------------------------------------$NIL

Terminal Loss/Recapture:

UCC-----------------------------------------------------------------$25000

Less: Lesser of i) Capital Cost ---------$28000

                            ii) Proceeds----------$ 25000                    $ 25000

                                                                                                   $ NIL

GREATER OF

            

              b) CEC -------------------------------------------------------------------------$ 30000

                      PROCEEDS ¾ X $ 40000-----------------------------------------------$30000

                                                                                                                                  NIL

MINIMUM ELECTED AMOUNT $

INCOME$

MAX BOOT$

LAND

210000

20000

190000

MARKETABLE SECURITIES

70000

NIL

70000

BUILDING

270000

NIL

270000

MACHINERY

55000

10000

30000

COMPUTERS

25000

NIL

25000

LICENCE

40000

NIL

40000

                              

MINIMUM ELECTED AMOUNT $

INCOME$

MAX BOOT$

LAND

210000

20000

190000

MARKETABLE SECURITIES

70000

NIL

70000

BUILDING

270000

NIL

270000

MACHINERY

55000

10000

30000

COMPUTERS

25000

NIL

25000

LICENCE

40000

NIL

40000

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