Karen sold equipment to her wholly-owned corporation for its fair market value, $40,000. Karen initially purchased the equipment for $100,000 and at the beginning of the current year the UCC of the equipment was $65,000. The equipment was the last asset remaining in the Class. Karen does not deal at arm’s length with the corporation.
Determine the tax consequences for Karen and the corporation. Income tax reference: ITA 13(7)(e)(iii), (21.2); Reg. 1100(2.2).