Question 3 Each of the following independent Cases describes a situation with a proposed tax treatment. 1. George Jones has owned a 200 acre parcel of land for a number of years. He had acquired this land for $250,000 with the intention of eventually building a home on the property. However, he received an offer of $425,000 for 75 acres of the property. Because this 75 acres has waterfront and better road access, he believes that the fair market value of the remaining 125 acres is only $175,000. He accepts the offer and plans to use an adjusted cost base of $177,083 {[$250,000][$425,000 = ($425,000 + $175,000)]} in calculating his gain or loss. 2. Charlie Pride sells a capital property with an adjusted cost base of $85,000 for $135,000. The $135,000 price includes a warranty on the property which he anticipates will cost him $5,000 to service. He does not anticipate any of the warranty costs will be incurred in the current taxation year. He plans to recognize a capital gain on the transaction of $45,000. 3. During the current year Ms. June Cash sold her sailboat to an arm's length party for $71,000. She had purchased the boat several years ago for $51,000. Also during the year, she sold securities with an adjusted cost base of $22,000 for $12,000. She intends to deduct the loss on the securities against the gain on the sailboat. 4. Hillary Snow has owned a cottage for a number of years, having acquired it for $125,000. It is currently worth more than $500,000. While she has rarely used it, preferring to stay in her penthouse in the city, she believes that it will continue to increase in value. Given this, she decides to convert it to a rental property. While she plans to report her future rental income to the CRA, she does not plan to recognize a gain or loss on the conv 100% 5. During the cul... e adjusted cost base of the asset was $184,000, resulting in a capital gain of $32,000. Under the terms of the sale, he will 4. Hillary Snow has owned a cottage for a number of years, having acquired it for $125,000. It is currently worth more than $500,000. While she has rarely used it, preferring to stay in her penthouse in the city, she believes that it will continue to increase in value. Given this, she decides to convert it to a rental property. While she plans to report her future rental income to the CRA, she does not plan to recognize a gain or loss on the conversion of the property since no disposition has taken place. 5. During the current year Mr. Rogers sells a non-depreciable capital asset for $216,000. The adjusted cost base of the asset was $184,000, resulting in a capital gain of $32,000. Under the terms of the sale, he will receive 10 percent ($21,600) of the proceeds in the current year, with the remainder being due early in the following year. As a result, he will recognize $3,200 of the capital gain in the current year. Required: In each of the preceding Cases, indicate whether or not you believe that the tax treatment being proposed is the correct one. Explain your conclusion