TAXX 401|TAXX 401v35: Practice Assignment 3
- Solutions 2026-2027 Canadian Tax Principles
Athabasca University
Not for Credit
Recommended Completion Date: after you complete the readings and learning activities
for Lessons 7–9 and before the final exam
Solution to AP 16-6
Part A – Income Tax Consequences of the Sale
The $475,000 elected amount on the sale of the land will be both the POD to Connie and the
ACB to the corporation. Since the elected amount exceeds Connie’s ACB, there will be a
taxable capital gain on the land of $87,500 [(1/2)($475,000 – $300,000)].
The $1,100,000 elected amount on the sale of the building will be the POD to Connie. Since
the amount is less than the capital cost of $1,175,000 but more than the UCC of $1,071,365
there will be recapture of $28,635 ($1,100,000 – $1,071,365). There can never be a capital
loss on depreciable property.
The tax cost to the corporation will be $1,100,000. However, for CCA purposes, the
corporation’s capital cost will be deemed to be $1,175,000 with $75,000 considered as
deemed CCA leaving the corporation with UCC of $1,100,000 (ITA 85(5)).
Part B - ACB of The Consideration
The ACB of all consideration received by Connie will be:
Elected amount $1,575,000
Less: FMV of NSC
($525,000 Assumed Mortgage + $1,050,000 New Debt) (1,575,000)
ACB of the preferred shares Nil
Part C - PUC of the Share Consideration
The calculation of PUC would be as follows:
Increase in legal capital $200,000
Less the excess, if any, of:
Elected Amount ($1,575,000)
Less: FMV of NSC 1,575,000 Nil
Reduction In PUC $200,000
TAXX401v35_PracticeAssignment3_Solutions 1 © Athabasca University, February 2026
, The PUC of the preferred shares would be nil ($200,000 – $200,000).
Part D - Sale of the Preferred Shares
The increase in net income as a result of the sale of the preferred shares for $400,000 would
TAXX401v35_PracticeAssignment3_Solutions 2 © Athabasca University, February 2026
- Solutions 2026-2027 Canadian Tax Principles
Athabasca University
Not for Credit
Recommended Completion Date: after you complete the readings and learning activities
for Lessons 7–9 and before the final exam
Solution to AP 16-6
Part A – Income Tax Consequences of the Sale
The $475,000 elected amount on the sale of the land will be both the POD to Connie and the
ACB to the corporation. Since the elected amount exceeds Connie’s ACB, there will be a
taxable capital gain on the land of $87,500 [(1/2)($475,000 – $300,000)].
The $1,100,000 elected amount on the sale of the building will be the POD to Connie. Since
the amount is less than the capital cost of $1,175,000 but more than the UCC of $1,071,365
there will be recapture of $28,635 ($1,100,000 – $1,071,365). There can never be a capital
loss on depreciable property.
The tax cost to the corporation will be $1,100,000. However, for CCA purposes, the
corporation’s capital cost will be deemed to be $1,175,000 with $75,000 considered as
deemed CCA leaving the corporation with UCC of $1,100,000 (ITA 85(5)).
Part B - ACB of The Consideration
The ACB of all consideration received by Connie will be:
Elected amount $1,575,000
Less: FMV of NSC
($525,000 Assumed Mortgage + $1,050,000 New Debt) (1,575,000)
ACB of the preferred shares Nil
Part C - PUC of the Share Consideration
The calculation of PUC would be as follows:
Increase in legal capital $200,000
Less the excess, if any, of:
Elected Amount ($1,575,000)
Less: FMV of NSC 1,575,000 Nil
Reduction In PUC $200,000
TAXX401v35_PracticeAssignment3_Solutions 1 © Athabasca University, February 2026
, The PUC of the preferred shares would be nil ($200,000 – $200,000).
Part D - Sale of the Preferred Shares
The increase in net income as a result of the sale of the preferred shares for $400,000 would
TAXX401v35_PracticeAssignment3_Solutions 2 © Athabasca University, February 2026
