You are the tax consultant for ABC Ltd. , a wholesale company which has a December 31 year-end. The owner-manager of the corporation wants to minimize ABC's income for tax purposes. You are given the following information. In June 2022, ABC replaced a building in Class 1 (the only asset in the class) destroyed by fire in 2021 with another building (new and unused non-residential building) that cost $600,000. Insurance proceeds of $400,000 were received in May 2021. The original cost in 2011 of the destroyed building was $350,000. This was the only capital asset transaction in 2021 and 2022. The undepreciated capital cost of Class 1 at the beginning of 2021 was $238,000.

1. Explain why the transaction qualifies for the replacement property rules. You should quote the appropriate provisions in the Income Tax Act to support your explanation.

2. Compute the minimum income that must be reported for the corporation's 2021 taxation year after the above disposition and purchase transactions have taken place.

3. Indicate the ACB and the UCC, before CCA, of the new building.

Answer rating: 100% (QA)

Tax Implications for ABC Ltds Building Replacement 1 Qualification for Replacement Property Rules The transaction qualifies for the replacement proper... View the full answer