Question

2019, Leblanc Ltd. replaced a Class 8 asset destroyed by a fire in May, 2018, with another Class 8 asset that cost $500,000. Insurance proceeds of $300,000 were received in December, 2018. The original cost of the destroyed asset was $250,000. These were the only Class 8 transactions in either 2018 or 2019. The UCC of Class 8 at the beginning of 2018 was $175,000. The Company has a December 31 year end. The sole shareholder of Leblanc Ltd. wants to minimize the Company’s Tax Payable in all years.

Required:

A. Indicate the tax consequences of the involuntary disposition that will be reported in the Company’s 2018 tax return.

B. Indicate the changes that will be reported in the amended 2018 return, provided the Company makes elections under ITA 13(4) (to defer recapture) and ITA 44(1) (to defer capital gains).

C. Calculate the maximum CCA that Leblanc Ltd. will be able to claim for Class 8 assets for 2019 assuming the Company makes elections under ITA 13(4) and ITA 44(1).

Answer 1

Answer :

(a). According to income tax act, if any of the person receives more than it's total cost then half of the income will be added to his income

Therefore the cost of the asset on that date was $250,000 but he receive more than it's total cost that is $300,000. Therefore half of his income will be added to his total income.

(b). There are certain changes reported under ITA 13(4) and ITA 44(1) are as follows

• He has to maintain books of accounts on regular basis
• He must get his accounts audited at equal time intervals
• He must declare his income at appropriate rates in the books of account

(c). The maximum claim can only be taken up-to 20% of the half value of the class 8 asset that is

= (250,000 / 2 )*20% = $25,000