Carolyn sold capital property on 2011 for $800,000 and incurred $24,000 in selling costs.
The property had an ACB of $176,000. Colin received $200,000 at the of sale
and a note for the balance. The note is to be repaid over six years in equal
installments of $100,000, commencing in 2012.
Required:
Determine the minimum taxable capital gain to be reported by Carolyn in 2011, 2012 and 2013.
To determine the minimum taxable capital gain to be reported by Carolyn in 2011, 2012, and 2013, we need to calculate the proceeds of disposition, the adjusted cost base (ACB) of the property, and the capital gain.
1. Proceeds of Disposition:
The proceeds of disposition are the total amount Carolyn received from selling the property. In this case, Carolyn received $800,000 in cash and a note for the remaining balance of $600,000 ($800,000 - $200,000). So, the total proceeds of the sale are $1,400,000 ($800,000 + $600,000).
2. ACB (Adjusted Cost Base):
The ACB of the property is the initial cost of the property plus any expenses incurred to acquire and improve it. In this case, the ACB is given as $176,000.
3. Capital Gain:
The capital gain is calculated as the proceeds of disposition minus the ACB. However, since Carolyn is receiving the remaining balance of $600,000 as a note to be paid over six equal installments, we need to consider the installment method.
a. 2011 Taxable Capital Gain:
In 2011, Carolyn received $800,000 in cash and incurred $24,000 in selling costs. So, the proceeds of disposition in 2011 are $776,000 ($800,000 - $24,000). The ACB remains the same at $176,000. Therefore, the taxable capital gain in 2011 is $600,000 ($776,000 - $176,000).
b. 2012 Taxable Capital Gain:
In 2012, Carolyn will receive the first installment of $100,000. So, the proceeds of disposition in 2012 will be $100,000. The ACB remains the same at $176,000. Therefore, the taxable capital gain in 2012 is $0 ($100,000 - $100,000).
c. 2013 Taxable Capital Gain:
In 2013, Carolyn will receive the second installment of $100,000. So, the proceeds of disposition in 2013 will also be $100,000. The ACB remains the same at $176,000. Therefore, the taxable capital gain in 2013 is $0 ($100,000 - $100,000).
In summary:
- 2011 Taxable Capital Gain: $600,000
- 2012 Taxable Capital Gain: $0
- 2013 Taxable Capital Gain: $0