Sondra Vendetti has owned a small apartment building for a number of years. It was acquired...
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Sondra Vendetti has owned a small apartment building for a number of years. It was acquired for cash in the amount of $1,860,000. This total was allocated on the basis of $460,000 for the land and $1,400,000 for the building. At the present time, the FMV of the property is estimated to be $2,180,000. This total is allocated as $520,000 for the land and $1,660,000 for the building. At January 1 of the current year the UCC balance in Class 1 is $1,118,690. Using the provisions of ITA 85(1), she intends to transfer the property to a newly incorporated company in which she will be the only shareholder. She will use an elected amount $1,578,690 (Land $460,000+ Building $1,118,690). As consideration she will receive 21,800 common shares which have a FMV of $100 per share. Immediately after the rollover is completed, Sondra sells all of the shares in the new corporation to an arm's length person for cash of $2,180,000. a. Describe the income tax consequences for Sondra of making the election under ITA 85(1) and the subsequent sale of the common shares. Include the cost of the assets to the corporation. b. How do these results compare with the income tax consequences of simply selling the building directly to the arm's length person for $2,180,000? Sondra Vendetti has owned a small apartment building for a number of years. It was acquired for cash in the amount of $1,860,000. This total was allocated on the basis of $460,000 for the land and $1,400,000 for the building. At the present time, the FMV of the property is estimated to be $2,180,000. This total is allocated as $520,000 for the land and $1,660,000 for the building. At January 1 of the current year the UCC balance in Class 1 is $1,118,690. Using the provisions of ITA 85(1), she intends to transfer the property to a newly incorporated company in which she will be the only shareholder. She will use an elected amount $1,578,690 (Land $460,000+ Building $1,118,690). As consideration she will receive 21,800 common shares which have a FMV of $100 per share. Immediately after the rollover is completed, Sondra sells all of the shares in the new corporation to an arm's length person for cash of $2,180,000. a. Describe the income tax consequences for Sondra of making the election under ITA 85(1) and the subsequent sale of the common shares. Include the cost of the assets to the corporation. b. How do these results compare with the income tax consequences of simply selling the building directly to the arm's length person for $2,180,000?
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