Bob sold the following assets in the current year: A piece of furniture purchased for $900 and sold for proceeds of $750. A car (for his personal use) originally purchased for $4,000 and sold for proceeds of $1,500. A gold chain with a cost of $800 was sold for proceeds of $1,500. Required: What is Bob's tax impact of the sale of assets? Solution: Mr. Bob McPipe owns a home in Edmonton as well as a cottage at Pigeon Lake. He purchased the house originally for $250,000, and the cottage was purchased for $120,000. Bob lived in the Edmonton house during the year, but spent six weeks each summer at the cottage. During the current year, both properties sold: the house for $400,000 and the cottage for $250,000. Bob informs you that he owned the house for 16 years and the cottage for 13 years. Required: What is the minimum capital gain Bob must report on the sale of the two properties in the current year? Solution: Bob has sold two properties that qualify as his principal residence during the current year. He can only claim one has his principal residence for each year he owned it. To minimize taxes, he should choose to designate the property with the largest capital gain per year owned as his principal residence. Capital Gain per Year of Ownership House Cabin Bob McPipe should claim the cabin at the lake as his principal residence for all years owned since this property has a larger capital gain per year, as compared to the house in Edmonton. This means that Bob should claim the cabin as his principal residence for 12 years (one year less than the number of years he owned it). By doing this, Bob will completely eliminate the gain on the sale of the cabin as follows: Exempt Gain =(1+12)/13$130,000=$130,000.00 The full amount of the gain is exempt from tax. Now, Bob can only claim is home in Edmonton as his principal residence for years in which he did not claim the cabin as his principal residence because you can only claim one property per family unit as your principal residence each year. The remaining years in which the Edmonton home can be designated as the principal residence are: 16 years 12 years claimed for cabin =4 years. The calculation of the exempt portion of the gain on the Edmonton home is: \begin{tabular}{l|r|r|} \multicolumn{1}{r|}{ Exempt Gain =} & (1+4)/16$150,000= & $46,875.00 \\ \hline Calculation of Capital Gain: & \multicolumn{2}{|c|}{ House } \\ \hline Proceeds of disposition & $400,000 & \\ \hline Adjusted cost base & $250,000 & \\ \hline Capital Gain (loss) & $150,000 & \\ \hline Principal Residence Exempt. & $46,875 \\ \hline Capital Gain & $103,125 & \\ \cline { 2 - 3 } Inclusion rate & 50% \\ \hline Taxable capital gain & $51,563 & \\ \hline \end{tabular} Bob sold the following assets in the current year: A piece of furniture purchased for $900 and sold for proceeds of $750. A car (for his personal use) originally purchased for $4,000 and sold for proceeds of $1,500. A gold chain with a cost of $800 was sold for proceeds of $1,500. Required: What is Bob's tax impact of the sale of assets? Solution: Mr. Bob McPipe owns a home in Edmonton as well as a cottage at Pigeon Lake. He purchased the house originally for $250,000, and the cottage was purchased for $120,000. Bob lived in the Edmonton house during the year, but spent six weeks each summer at the cottage. During the current year, both properties sold: the house for $400,000 and the cottage for $250,000. Bob informs you that he owned the house for 16 years and the cottage for 13 years. Required: What is the minimum capital gain Bob must report on the sale of the two properties in the current year? Solution: Bob has sold two properties that qualify as his principal residence during the current year. He can only claim one has his principal residence for each year he owned it. To minimize taxes, he should choose to designate the property with the largest capital gain per year owned as his principal residence. Capital Gain per Year of Ownership House Cabin Bob McPipe should claim the cabin at the lake as his principal residence for all years owned since this property has a larger capital gain per year, as compared to the house in Edmonton. This means that Bob should claim the cabin as his principal residence for 12 years (one year less than the number of years he owned it). By doing this, Bob will completely eliminate the gain on the sale of the cabin as follows: Exempt Gain =(1+12)/13$130,000=$130,000.00 The full amount of the gain is exempt from tax. Now, Bob can only claim is home in Edmonton as his principal residence for years in which he did not claim the cabin as his principal residence because you can only claim one property per family unit as your principal residence each year. The remaining years in which the Edmonton home can be designated as the principal residence are: 16 years 12 years claimed for cabin =4 years. The calculation of the exempt portion of the gain on the Edmonton home is: \begin{tabular}{l|r|r|} \multicolumn{1}{r|}{ Exempt Gain =} & (1+4)/16$150,000= & $46,875.00 \\ \hline Calculation of Capital Gain: & \multicolumn{2}{|c|}{ House } \\ \hline Proceeds of disposition & $400,000 & \\ \hline Adjusted cost base & $250,000 & \\ \hline Capital Gain (loss) & $150,000 & \\ \hline Principal Residence Exempt. & $46,875 \\ \hline Capital Gain & $103,125 & \\ \cline { 2 - 3 } Inclusion rate & 50% \\ \hline Taxable capital gain & $51,563 & \\ \hline \end{tabular}