Canadian tax principle-2  george brown college Mr. Abe Nakajima is 50 years old and married to Sachiko Nakajima.  On December 31, 2021, their son, Martin, is 25 years old, while their daughter, Hana, is 12 years old.

At the end of 2021, Abe is holding equity securities of a public company with an adjusted cost base of $90,000 and a fair market value of $150,000.

He is considering transferring these securities to either his wife or to one of his two children.  He seeks your advice as to the tax consequences, both to himself and to the transferee that would result from such a transfer.  

During your discussions, Mr. Nakajima has indicated the following:

The transfer will take place on December 31, 2021.

Any proceeds he receives from his family on the share transfer will not be invested in income producing assets.

He wishes you to assume that the securities would pay eligible dividends during 2022 of $10,000 ($13,800 taxable amount) and that the transferee would sell the securities on January 1, 2023 for $250,000.

Required: Each of the following independent Cases involves a transfer by Mr. Nakajima to a member of his family.  Indicate, for each of the independent Cases the impact on the Net Income for Tax Purposes of both Mr. Nakajima and the transferee for each of the years 2021, 2022, and 2023 of the following transactions.  Also for the transfer on December 31, 2021 indicate the transferee's ACB.

• the transfer on December 31, 2021,
• the assumed 2022 receipt of the dividends, and
• the assumed January 1, 2023 disposition by the transferee.  

Case A Mr. Nakajima gifts the securities to his wife and does not elect out of the provisions of the ITA 73(1) spousal rollover.

Case B Mr. Nakajima's wife uses money from her savings account to purchase the securities for $95,000.  Mr. Nakajima elects out of the provisions of the ITA 73(1) spousal rollover.

Case C Mr. Nakajima gifts the securities to his daughter, Hana.

Case D Mr. Nakajima's son, Martin, uses funds from his stock trading account to purchase his father's securities for $175,000.

Answer rating: 100% (QA)

The detailed answer for the above question is provided below Case A Mr Nakajima Year 2021 No change ... View the full answer