Kristal and Joe have been very active participants in their local real estate market. Two years ago, they completed a real estate deal with their neighbour, Kevin. As a result of the deal, the couple earned a capital gain of $10 000. When the real estate transaction was completed, Kevin had assured the couple that they would receive their money very soon. Unfortunately, two months have passed and Kristal and Joe, who have yet to receive their money, need to complete their tax return. Since they are confident that they will receive their investment gain soon, they decide that the safe thing to do is pay income tax on the $10 000 by reporting it on their tax return. 

It is now two years later and the couple has yet to receive their $10 000 capital gain. Kevin has moved to another city. Joe is angry that he paid tax on money he never received. This year, the couple has earned another $10 000 in capital gains from selling real estate. They decide that in order to make up for what happened two years earlier, they will not report this capital gain on their tax return. If the CRA questions them about this in the future, they feel that they can justify their actions by explaining what happened with Kevin two years ago.

a. Discuss whether you think Kristal and Joe are being ethical in not reporting the $10 000 they received this year.

b. Did the couple do the right thing by reporting the first $10 000 in capital gains on their income tax return two years ago? Explain.

c. Is there anything else the couple could do to clear up their tax mess?