Winding Inc. has a Class 1 building with an original cost of $900,000, of which $150,000 can be attributed to the land.  It is the only Class 1 asset owned by the Company and, on January 1, 2019, its UCC balance is $425,000.

On July 1, 2019, this building is completely destroyed in a major earthquake.  It is estimated that, at the time of this event, the fair market value of the building and land was $1,200,000, with $200,000 of this total applicable to the land.  With respect to the building, insurance proceeds of $1,000,000 are received on November 1, 2019.  Also, on this date, the land is sold for $200,000.

On February 1, 2020, the Company finds a suitable replacement building that is located near the site of the old building.  It is acquired on that date at a cost of $1,400,000, including an estimated value for the land of $300,000.  As it is not a new building, it does not qualify for the enhanced CCA rate for Class 1 buildings.

 

Required:

A.  Indicate the tax consequences of the involuntary disposition that will be reported in the Company’s 2019 tax return. 

B.  Indicate the changes that will be reported in the amended 2019 return, provided the Company makes elections under ITA 13(4) (to defer recapture) and ITA 44(1) (to defer capital gains).  In addition, determine the capital cost for the replacement assets, subsequent to the application of these elections.