Problem #$6$

Derek Blunt wishes to transfer a non$-$depreciable capital property to a corporation that is owned

by his adult daughter. The corporation is a new corporation, established with an investment of

$$100$ in cash. Derek's daughter holds all of the common shares in this new corporation.

At the time of its transfer to the corporation, the non$-$depreciable capital property has an adjusted

cost base of $$250,000$ and an estimated fair market value of $$400,000.$ The transfer is made at an

elected value of $$250,000,$ with Derek receiving the corporation's note for $$250,000,$ as well

as preferred shares with a legal stated capital and fair market value of $$150,000.$ A CRA

reassessment of this transaction determines that the actual fair market value of the property

transferred is $$475,000.$ Mr$.$ Blunt reluctantly accepts this value.

After the reassessment, Derek and his daughter both sell their shares in the new corporation for

their fair market value.

Required: Describe the tax consequences of these transactions for both Mr$.$ Blunt and his

daughter. How would these tax consequences differ if Mr$.$ Blunt had simply sold the non$-$

depreciable capital property for its post$-$reassessment fair market value of $$475,000?$