Income Tax question.

Moe Granite incorporated his residential construction business 15 years ago. The ca rock Ltd., has been very successful and very profitable to the point that it has exce it has been regularly investing. Moe and his family live in a home he purchased a few years before he was marrie acquired two plots of land- one located along the lakefront of an expanding area th in popularity since he purchased it and a second in an area that Moe expected w become a growing commercial sector given its proximity to a major city. The family home is his only principal residence. Moe had always planned to buil home on the vacant land but he has been so busy with the company he never had begin the construction of that lakefront home. Moe recently sat down with his accountant, telling him about his plans and ad needed additional cash from the company to realize his dreams. He estimated that tion of the lakefront home would take almost a full year given its location and wou in excess of $1 million. He was unwilling to sell the current family home until the cc the lakefront home was complete. He also was unwilling to sell the second piece o his accountant that the time was not right and he expected the value to increase in the next few years. Moe told his accountant that he was in a quandary as to how to come up with would need given he was unwilling to borrow from commercial lenders or his own not want to sell his current family home or the second plot of land or pay any addit taxes by drawing additional salary or dividends since he was already paying tax a tax bracket. Given the expanded tax on split income (TOSI) he was also unwilling to family income splitting planning with his spouse and their three minor children. Moe's accountant told him that he had a plan that would accomplish his objectives cost. The accountant explained that Moe could sell both the current family home an piece of land to his company. This, explained the accountant, would keep the curre the land in the family" while giving him all the funds necessary to complete the la struction and avoiding the payment of any additional income taxes. Moe agreed. T sell/transfer the current family home and the second piece of land to the company. be used to transfer both properties. The accountant added that while ITA 85(1) is n for a fair market value sale of the family home since none of the gain will be taxable that the additional flexibility provided made it worthwhile to include it in the elect agreements are all dated November 18, 2020. The two properties and their releva the date of transfer are as follows: Tax Cost (ACB) $450,000 115,000 Fair Valu $1 Principle Residence Vacant Land air market value (FMV) for each property was estimated by Moe. Assume that no pre valuation was done. There is an existing mortgage on the principal residence of $160, company will pay Moe the following amounts for each property: Assumption of the Mortgage Promissory Note Preferred Shares Total Sale Price of the Principal Residence $ 160,000 840,000 Nominal $1,000,000 Note: The reference to "nominal" means $1 or other negligible amount, which you can ignore in your answer. Assumption of the Mortgage Promissory Note Preferred Shares Total Sale Price of the Principal Residence Nil 115,000 385,000 $500,000 consideration for ITA 85(1) purposes is as follows: Assumption of the Mortgage Promissory Note Preferred Shares Total Sale Price of the Principal Residence $ 160,000 955,000 385,000 $1,500,000 ITA 85(1) elected amount for the principal residence will be $1,000,000 and $115,000 fo land. ume that in 2022, the 2020 ITA 85 election is audited and reassessed by the CRA on the is that the FMV pf the principal residence is $750,000 and $250,000 for the vacant land. quired: Calculate the effect on Moe's net income that will result from the ITA 85(1) election as originally filed. Determine the ACB and PUC of the preferred shares and ACB of the promissory note received by Moe on the transfer. Determine the tax consequences of the reassessment by the CRA. Be sure to include in your answer revisions to the ACB of the promissory notes and ACB and PUC of the pre- ferred shares after the reassessment. Could Moe have done anything different to avoid the CRA reassessment? Moe Granite incorporated his residential construction business 15 years ago. The ca rock Ltd., has been very successful and very profitable to the point that it has exce it has been regularly investing. Moe and his family live in a home he purchased a few years before he was marrie acquired two plots of land- one located along the lakefront of an expanding area th in popularity since he purchased it and a second in an area that Moe expected w become a growing commercial sector given its proximity to a major city. The family home is his only principal residence. Moe had always planned to buil home on the vacant land but he has been so busy with the company he never had begin the construction of that lakefront home. Moe recently sat down with his accountant, telling him about his plans and ad needed additional cash from the company to realize his dreams. He estimated that tion of the lakefront home would take almost a full year given its location and wou in excess of $1 million. He was unwilling to sell the current family home until the cc the lakefront home was complete. He also was unwilling to sell the second piece o his accountant that the time was not right and he expected the value to increase in the next few years. Moe told his accountant that he was in a quandary as to how to come up with would need given he was unwilling to borrow from commercial lenders or his own not want to sell his current family home or the second plot of land or pay any addit taxes by drawing additional salary or dividends since he was already paying tax a tax bracket. Given the expanded tax on split income (TOSI) he was also unwilling to family income splitting planning with his spouse and their three minor children. Moe's accountant told him that he had a plan that would accomplish his objectives cost. The accountant explained that Moe could sell both the current family home an piece of land to his company. This, explained the accountant, would keep the curre the land in the family" while giving him all the funds necessary to complete the la struction and avoiding the payment of any additional income taxes. Moe agreed. T sell/transfer the current family home and the second piece of land to the company. be used to transfer both properties. The accountant added that while ITA 85(1) is n for a fair market value sale of the family home since none of the gain will be taxable that the additional flexibility provided made it worthwhile to include it in the elect agreements are all dated November 18, 2020. The two properties and their releva the date of transfer are as follows: Tax Cost (ACB) $450,000 115,000 Fair Valu $1 Principle Residence Vacant Land air market value (FMV) for each property was estimated by Moe. Assume that no pre valuation was done. There is an existing mortgage on the principal residence of $160, company will pay Moe the following amounts for each property: Assumption of the Mortgage Promissory Note Preferred Shares Total Sale Price of the Principal Residence $ 160,000 840,000 Nominal $1,000,000 Note: The reference to "nominal" means $1 or other negligible amount, which you can ignore in your answer. Assumption of the Mortgage Promissory Note Preferred Shares Total Sale Price of the Principal Residence Nil 115,000 385,000 $500,000 consideration for ITA 85(1) purposes is as follows: Assumption of the Mortgage Promissory Note Preferred Shares Total Sale Price of the Principal Residence $ 160,000 955,000 385,000 $1,500,000 ITA 85(1) elected amount for the principal residence will be $1,000,000 and $115,000 fo land. ume that in 2022, the 2020 ITA 85 election is audited and reassessed by the CRA on the is that the FMV pf the principal residence is $750,000 and $250,000 for the vacant land. quired: Calculate the effect on Moe's net income that will result from the ITA 85(1) election as originally filed. Determine the ACB and PUC of the preferred shares and ACB of the promissory note received by Moe on the transfer. Determine the tax consequences of the reassessment by the CRA. Be sure to include in your answer revisions to the ACB of the promissory notes and ACB and PUC of the pre- ferred shares after the reassessment. Could Moe have done anything different to avoid the CRA reassessment