Each of the following independent Cases describes a situation with a proposed tax treatment. 1. Mr....

   

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Each of the following independent Cases describes a situation with a proposed tax treatment. 1. Mr. Acker has owned a small triplex for a number of years and, throughout this period, all three of the units have been rented. In determining his income from this property, he has deducted CCA in each year. During the current year, Mr. Acker has moved into one of the three units and, as a result, will be reporting reduced rental revenues in his tax return. As he has not sold any property, he will not report any capital gains or losses during the current year. 2. Mr. Jones has sold a property with an adjusted cost base of $72,000 for total proceeds of $105,000. He is providing a warranty on the property that he estimates will cost him $6,000 to service. As a consequence, he is recognizing a capital gain of $27,000. 3. Ms. Turner sold her dining room table to her daughter for $400 and a painting to her brother for $900. These prices equalled their estimated fair market values. Several years ago, she purchased the table for $950, and the painting for $667. She does not plan to report any capital gain or loss. 4. Mrs. Brown purchased corporate bonds for $11,200, of which $800 was accrued interest and $10,400 represented the principal. The bonds were later sold for $11,600 that includes $200 for accrued interest. Mrs. Brown recognizes a taxable capital gain of $500. 5. Several years ago, Miss Lee transferred three sports cars, with a total value of $182,000, to a corporation in return for all of the shares of the company. The cars are profitably used in her personal escort business. During the current year, all of the cars are destroyed in a fire on her estate. Unfortunately, Miss Lee did not believe that people in her financial position needed insurance and, as a consequence, no compensation was available for the loss. As the corporation had no assets other than the cars, there was no reason for her to continue to hold the shares. In view of this situation, she sells the shares to a friend who requires a corporate shell for some business operations. The sale price is $500 and Miss Lee uses the allowable capital loss of $90,750 [(1/2) ($182,000 - $500)] to offset taxable capital gains resulting from real estate transactions. Required: In each of the preceding Cases, indicate whether or not you believe that the tax treatment being proposed is the correct one. Explain your conclusion. Each of the following independent Cases describes a situation with a proposed tax treatment. 1. Mr. Acker has owned a small triplex for a number of years and, throughout this period, all three of the units have been rented. In determining his income from this property, he has deducted CCA in each year. During the current year, Mr. Acker has moved into one of the three units and, as a result, will be reporting reduced rental revenues in his tax return. As he has not sold any property, he will not report any capital gains or losses during the current year. 2. Mr. Jones has sold a property with an adjusted cost base of $72,000 for total proceeds of $105,000. He is providing a warranty on the property that he estimates will cost him $6,000 to service. As a consequence, he is recognizing a capital gain of $27,000. 3. Ms. Turner sold her dining room table to her daughter for $400 and a painting to her brother for $900. These prices equalled their estimated fair market values. Several years ago, she purchased the table for $950, and the painting for $667. She does not plan to report any capital gain or loss. 4. Mrs. Brown purchased corporate bonds for $11,200, of which $800 was accrued interest and $10,400 represented the principal. The bonds were later sold for $11,600 that includes $200 for accrued interest. Mrs. Brown recognizes a taxable capital gain of $500. 5. Several years ago, Miss Lee transferred three sports cars, with a total value of $182,000, to a corporation in return for all of the shares of the company. The cars are profitably used in her personal escort business. During the current year, all of the cars are destroyed in a fire on her estate. Unfortunately, Miss Lee did not believe that people in her financial position needed insurance and, as a consequence, no compensation was available for the loss. As the corporation had no assets other than the cars, there was no reason for her to continue to hold the shares. In view of this situation, she sells the shares to a friend who requires a corporate shell for some business operations. The sale price is $500 and Miss Lee uses the allowable capital loss of $90,750 [(1/2) ($182,000 - $500)] to offset taxable capital gains resulting from real estate transactions. Required: In each of the preceding Cases, indicate whether or not you believe that the tax treatment being proposed is the correct one. Explain your conclusion.