Reference no: EM132737550

Problem 1: A company is considering selling one of its two factories used in its business in Canada. The building was acquired in 2017 at a cost of $1,000,000 and is allocated to a separate class 1 for CCA purposes, which had a UCC balance of $800,000 at the beginning of the year. Which of the following statements is correct with respect to the tax consequences that would arise in connection with the proposed sale of the building:

A. None of the above.

B. If the building were sold for proceeds of disposition of $900,000 the company would suffer a capital loss of $100,000 half of which can be deducted as an allowable capital loss against taxable capital gains realized in the year, if any. The company would also be required to include in its business income CCA recapture of $100,000.

C. If the building were sold for proceeds of disposition of $800,000 the company would suffer a capital loss of $200,000 half of which can be deducted as an allowable capital loss against taxable capital gains realized in the year, if any. There would be no further tax consequences for the company because it would be selling the building at an amount corresponding exactly to the UCC balance for the separate class 1.

D. If the building were sold for proceeds of disposition of $1,000,000 there would be no capital gain or loss and absolutely no tax consequences for the company as it would be selling the building for exactly the same price it paid to acquire the building in 2017.

E. If the building were sold for proceeds of disposition of $1,100,000 the company would realize a taxable capital gain of $100,000 the entire amount of which must be included in the calculation of Net Income for the year under ITA 3(b). The company would also be required to include in its business income for the year CCA recapture of $200,000.

F. If the building were sold for proceeds of disposition of $750,000 the only tax consequence for the company would be a terminal loss of $50,000 the entire amount of which would be allowed as a deduction in the calculation of business income for the year.