Dad is fed up with paying what he considers to be too much taxes and he is finally going to do something about it. He wants to transfer his rental property to one of his immediate family members. As none of them have any money, and being a simple man, Dad wants nothing to do with complicated loan arrangements or dealing with lawyers to incorporate holding companies. Consequently, he has decided to simply gift the property.

The rental property is located on leased land and had an original cost of $256,000. On January 1, 2021, the building had a UCC of $178,000 and a fair market value of $386,000. The building is always fully rented and earns net rental income of $10,000 per year before CCA.

Dad is considering gifting his property in early 2021 to one of the 3 following family members: his long-suffering good wife he calls “Mother”, Stevie, his 14-year daughter who is the apple of his eye, and then there is his 25-year ne’er do well son, Bill, who still lives in Dad’s basement.

 

Required:

In a concise point form schedule, calculate all the taxable amounts that will materialize by the gift to one of his family members.

Specifically, for each of the 3 potential beneficiaries, you must indicate all the taxable amounts to Dad and to each of the 3 potential beneficiaries regarding the following 3 events:

1- Tax impact when the property is transferred via the gift

2- Taxation of the net rental income before CCA, earned by the property after the transfer; and

3- Tax impact, if the beneficiary subsequently sells the property for $400,000 on December 30, 2021.

 

In your answer, assume that no elections or loans are made