Mr. Ludvig disposed of a capital property for $100,000 on July 1, Year 1. The sales proceeds

are payable in 3 instalments: $30,000 at the time of the sale, $35,000 on July 1, Year 2 and $35,000 on July 1, Year 3.

Other information:

The ACB of the property for Mr. Ludvig was $20,000

Required: Calculate the capital gain that will be reported, if any, by Mr. Ludvig in Years 1, 2 and 3.

Solution:

In each year the reserve is the lesser of:

Year 1

Year 2

Year 3

(i)

(POD not received in year/total POD) x capital gain; or

NA

(ii)

(20%)(capital gain)(4 - number of preceding taxation years after disposition)

NA

NOTE: No capital gains reserve is allowed in year 3 as all proceeds have been received by end of year 3.

Calculation of Capital Gain:

Year 1

Year 2

Year 3

Proceeds of disposition

Adjusted cost base

Capital Gain

$ -

$ -

$ -

for years 2 & 3, the prior year's reserve is included in income as a capital gain

Capital Gains reserve

$ -

$ -

Net capital gain

$ -

$ -

$ -

Inclusion rate

0.50

0.50

0.50

Taxable capital gain

$ -

$ -

$ -

Total Taxable Capital Gain (over 3 years)

$ -

equivalent to the total taxable capital gain on sale of property [(100,000 - 20,000) x 1/2]