Johnny Wong had purchased a dilapidated apartment block, The Empress, 20 years ago for $220,000. At the time, the purchase price had been allocated $80,000 to the land and $140,000 to the building. The Empress is the only building Johnny owns and is considered a Class 3 asset for CCA purposes. To date, Johnny has claimed CCA of $37,000.
High Towers has acquired all the lots in the same block as Johnny's building, except for The Empress. Johnny realized that as the last hold-out he was in an enviable negotiating position with High Towers. High Towers was desperate to gain ownership of The Empress and tear it down. After receiving ever-escalating offers, Johnny agreed to accept High Towers' offer of $ 1,000,000.
REQUIRED
Advise Johnny regarding the allocation of the purchase price between the land and building.