Len Jamal bought a parcel of land in 1992. It was his intention that he would build a family home on the land some day. However, the city continued to delay issuing permits to landowners in the area and eventually Len purchased another home. He held onto the land for a number of years but has now decided that he needs the cash and will sell the property. The details related to his purchase of the land are set out below.
Purchase Price: $4,000; Purchase Date: May 21, 1992
Len has received an offer from an acquaintance to purchase the land. The payment terms are set out below and are considered to represent fair market value.
Purchase Price: $160,000; Purchase Date: October 1, 2012
Payment terms: $40,000 down payment on purchase date; $20,000 payable on January 1 each year for the period January 1, 2012 through January 1, 2017 inclusive. Interest: Interest is payable at 6% annually on the unpaid balance.
Len is uncertain as to whether the disposition is on account of capital or income.
REQUIRED
Compare the income tax consequences to Len of this sale if the sale is on account of capital and, alternatively, if it is on account of income. Do not calculate the interest income. Ignore the consequences and calculation of the interest income.