Ms. Vicky Vaughn is a very successful attorney with an income of over $500,000 per year. She is married to Mr. Jonathan Flex, a former Mr. Canada. Mr. Flex has no income of his own.

She and Mr. Flex have two children. Their daughter, Sheila, is 27 years of age, while their son, Biff, is 15 years of age. To date, Ms. Vaughn has not gifted or sold the property to either her spouse or her children.

At the end of the current year, Ms. Vaughn owns the following assets:

Shares Of TD Bank Ms. Vaughn owns 10,000 shares with a current fair market value of $700,000. The adjusted cost base for these shares is $550,000.

Vaughn Enterprises Ltd. Ms. Vaughn owns all of the shares of this Canadian-controlled private company. Her adjusted cost base for these shares is $475,000. A business valuator has concluded that the shares are currently worth $1,200,000. Vaughn Enterprises is not a qualified small business corporation for purposes of the lifetime capital gains deduction.

Rental Property Ms. Vaughn owns a 22 unit apartment building with a current fair market value of $2,400,000. It is estimated that $400,000 of this value is associated with the land. Ms. Vaughn purchased the unit several years ago at a total cost of $1,500,000, with $300,000 of this value associated with the land. As of January 1 of the current year, the UCC of the Class 1 building is $960,000.

Farm Land Ms. Vaughn owns farm land that cost $800,000 and has a current fair market value of $1,200,000. Sheila uses the farm land on a full time basis to grow certified organic vegetables.

As Ms. Vaughn’s income is more than sufficient for her needs, she is considering giving all or part of the properties to her spouse and/or her two children.

Required: You have been hired as a tax consultant to Ms. Vaughn. She would like a report that would detail, for each of the four properties, the tax consequences to her of making a gift of the item to her husband or to either one of her children. In determining the required tax conse- quences, ignore the possibility that the Tax On Split Income (TOSI) may be applicable to any of the income realized on the properties.

Ms. Vaughn does not elect out of ITA 73(1) if the gifts are made to Mr. Flex. In addition, assume that the recipient of the rental property does not take CCA prior to the subsequent sale of the property.

Your report should include:

• the tax consequences to Ms. Vaughn at the time of the gift;

• the tax cost of the properties to the recipient of the gift;

• the tax treatment of any income on the property subsequent to the gift and before the

  property is sold; and

• the tax consequences that would result from a subsequent sale of the gifted property at

  $100,000 more than its fair market value at the time of the gift. In the case of the rental property, assume that all of this extra $100,000 can be allocated to the building, with no change in the value of the land.

Answer rating: 100% (QA)

Introduction There are tax implications for both donating gifts while alive and leaving an inheritance The law treats cash and the majority of personal property differently than the property that has ... View the full answer