Assessment >> Formal Assessment

Assessment: Income Tax Planning Web - Academic Partners Unit 6 Post-Assessment (C115V20U6L0A25Q20)
Date Submitted: 08/01/2022 08:38:00 PM
Total Correct Answers: 18
Total Incorrect Answers: 2

Your Mark (total correct percentage): 90%

1 Dawn purchased an 8% 5-year $10,000 semi-annual corporate bond in the secondary market on
October 1st of last year. The bond was originally issued on April 1st of the previous year. Dawn received
her first interest payment on March 31st of this year. How much will Dawn have to report on her tax
return for this year?

Correct

The correct answer: $800

Your answer: $800
Solution:

Dawn will have to report $800 on her tax return for this year.

An individual who receives interest income must report it when it is received or receivable (the cash method), unless it
has already been reported as taxable income in a previous year under the accrual method.

Dawn's bond pays interest semi-annually. So, Dawn will have to report the two semi-annual interest payments of $400
that she received on March 31st and September 30th of this year on her tax return for this year.

2 Bonnie bought a new 5-year $20,000 strip bond on January 1st of this year for $13,930. How much must
Bonnie accrue on her tax return for this year?

Correct

The correct answer: $1,045

Your answer: $1,045
Solution:

For bonds that do not make regular interest payments, the investor must still accrue the interest income that has been
earned according to the bond year. The bond year ends on the anniversary day of the bond, which is one year after the
day that immediately precedes the day of issue of the contract.

The anniversary day of Bonnie's bond is December 31st of this year. She must report the income earned, but not
received, from January 1st through December 31st of this year on her tax return for this year. At the end of the first
bond year, her strip bond would be worth $14,975, calculated by entering DISP = 2, P/YR = 2, ×P/YR = 5, PV = -
$13,930, PMT = $0, FV = $20,000 and solving for I/YR = 7.37%. Then without clearing your calculator, enter DISP = 0,
xP/YR = 4 and solve for PV. By using semi-annual compounding, we find that she will have to report $1,045 in interest,
calculated as ($14,975 - $13,930).

3 Lena is in the top federal marginal tax bracket (i.e. 33%) and she lives in a province where her provincial marginal
tax rate is 13.16% and the provincial dividend tax credit is 2.9863%. Lena earns other than eligible dividend income
of $16,000 from a Canadian-controlled private corporation. If the federal dividend tax credit is 9.0301%, how much
of the dividend income received by Lena will she have left after tax?
Incorrect

The correct answer:

$ 9,717.58

Your answer:

$10,602.60

Solution:

Dividends from a taxable CCPC are included in income, along with a 115% gross-up of the amount received. A taxpayer
can then claim a federal dividend tax credit of 9.0301% of the grossed-up dividend as well as a provincial dividend tax
credit, that is specific to each jurisdiction.

Therefore, Lena must report taxable dividend income of $18,400, calculated as (dividend income x gross-up rate for
other than eligible dividends) or ($16,000 x 115%). On this amount, she will have to pay federal tax of $4,410.46,
calculated as [taxable dividend × (federal marginal tax rate - federal dividend tax credit)] or [$18,400 x (33% -
9.0301%)]. She will also incur provincial taxes of $1,871.96, calculated as [taxable dividend income × (provincial
marginal tax rate - provincial dividend tax credit)] or [$18,400 x (13.16% - 2.9863%)]. So, Lena will have $9,717.58
left after tax, calculated as [dividend income - (federal tax + provincial tax)] or [$16,000 - ($4,410.46 +$1,871.96)].

4 Michael held 2% of the outstanding shares of Filmplus Inc., a CCPC, when it issued a stock dividend and capitalized
$800,000 of its retained earnings. By how much did Michael's taxable income increase as a result of the dividend?

Incorrect

The correct answer:

$18,400

Your answer:

$20,000

Solution:

Stock dividends received by a taxpayer must be included in the taxpayer's income for that year in the same manner as if
the dividend had been received as cash. This means that the gross-up and dividend tax credit rules also apply to stock
dividends. The amount of the dividend is considered to be the increase in the paid-up capital of the corporation that
results from the issue of the new shares.

Filmplus capitalized earnings of $800,000 when it issued the stock dividend. Michael will receive a stock dividend equal
to his share of the capitalized retained earnings or $16,000, calculated as (total capitalized earnings x Michael's
ownership interest) or ($800,000 x 2%). So, Michael's taxable income will increase by $18,400, calculated as (stock
dividend x gross-up rate for other than eligible dividends) or ($16,000 x 115%).

5 Jenny purchased an old building, which she intends to renovate and eventually rent out as luxury
apartment units. She expects the renovations to take at least two years. Which of the following
statements about the following costs incurred during the first year of the renovation project are FALSE?
Correct

The correct answer: The amount that Jenny pays in property taxes is deductible from her other sources of income as a
current expense.
Your answer: The amount that Jenny pays in property taxes is deductible from her other sources of income as a
current expense.
Solution:

Soft costs are expenses that relate specifically to the period in which the taxpayer was constructing, renovating or
altering a building to make it more suitable for renting, including costs related to the ownership of land associated with
the building. Soft costs typically include interest or other financing charges, legal fees related to the renovations (but not
legal fees related to the purchase), accounting fees and property taxes. Soft costs that relate to the building are
considered capital expenditures and must be added to the cost of the building, to eventually be deducted as capital cost
allowance.

(Choice A is false.) So, the amount that Jenny pays in property taxes is not deductible from her other sources of income
as a current expense.

6 Rose rents out an apartment over her garage for $800 per month. The apartment is 750 square feet, while the
remainder of her house is 2,000 square feet. Last year, Rose made total mortgage payments of $19,800, which
included $4,600 in principal repayments. She paid a total of $650 for house insurance, $2,800 in property taxes,
$3,600 for utilities and $400 for lawn maintenance services. She also paid $360 to provide extra cable TV service
solely to the apartment and $200 to steam clean the carpets in the apartment. What is Rose's net rental income?

Correct

The correct answer:

$2,863

Your answer:

$2,863

Solution:

If an individual rents out part of the building where he or she lives, the individual may deduct 100% of all current
expenses that relate to the rented part, plus a portion of current expenses that relate to the whole building. The latter
portion is determined as a reasonable percentage of the whole building. It may be calculated on the basis of the number
of rooms or the square footage.

Rose had gross rental income of $9,600. From this amount, she can deduct the full amount of her steam cleaning
expenses and the extra cable TV service. She can also deduct a reasonable portion of her other home ownership and
maintenance expenses, which includes everything except her mortgage principal. Her eligible home expenses are
$22,650, calculated as [(total mortgage payments - principal repayment) + house insurance + property taxes + utilities
+ lawn maintenance services] or [($19,800 - $4,600) + $650 + $2,800 + $3,600 + $400]. She can deduct $6,177 from
her rental income as a use-of-home expense, calculated as [(total area of apartment ÷ total area of house) x eligible
home expenses] or [(750 ÷ (750 + 2000)) x $22,650]. So, Rose's net rental income is $2,863, calculated as (gross
rental income - dedicated cable TV service - steam cleaning charges - use-of-home expense) or ($9,600 - $360 - $200 -
$6,177).

7 Hal is the owner/manager of a private corporation and he personally manages the finances of the
business. However, he sometimes makes a mistake when classifying his cash outflows. Which of the
following statements are FALSE?
 1. When the corporation used some of its after-tax profits to purchase a portfolio of investments,
the corporation had a capital expenditure.
2. When the corporation purchased a customer list, it had an eligible capital expenditure.
3. When the corporation acquired a parcel of land on which it plans to build a new factory, it
acquired a depreciable capital property.
4. When the corporation placed an advance order for its ad to run each week in the Financial Post for
a year, it had a capital expenditure.

Correct

The correct answer: 3 and 4

Your answer: 3 and 4
Solution:

Capital expenditures include the cost of acquiring property used to produce income. Capital expenditures can be for
depreciable capital property, eligible capital expenditures or simply capital property. Land is capital property, not
depreciable capital property. Advertising is a current expense, not a capital expenditure.

(Statement 3 is false.) Land is capital property, not depreciable capital property. So, when the corporation acquired a
parcel of land on which it plans to build a new factory, it did not acquire a depreciable capital property.

(Statement 4 is false.) Advertising is a current expense. So, when the corporation placed an advance order for its ad to
run each week in the Financial Post for a year, it did not have a capital expenditure.

8 Tanya operates a business as a sole proprietor and in February, she purchased a photocopier for $3,400.
The photocopier falls into Class 8, which has a maximum CCA rate of 20%. This is the only asset that
Tanya has in this class. Tanya wanted to sell the photocopier in December of the same year and was
surprised to find that the most she could sell it for was $2,300. She decided to hold on to the machine
for another year. Which of the following statements are FALSE?

1. Tanya has a depreciation expense of $680.

2. Tanya's unadjusted UCC is $3,400.
3. Tanya's capital cost is $3,400.
4. Tanya can claim CCA of up to $340 for the year.

Correct

The correct answer: 1 only

Your answer: 1 only
Solution:

Depreciation is an accounting concept designed to take into account the true economic decrease in the value of property
over time as a result of wear or obsolescence. Capital cost allowance is a tax concept designed to provide tax relief by
permitting a deduction that in part recognizes the wear or obsolescence of property over time. The amount of the
permitted deduction may or may not reflect the true wear and tear on that property during the year, depending on the
CCA rate permitted for that property.

In most cases, CCA is calculated on a diminishing balance basis, which means that the maximum CCA rate is applied to
the undepreciated capital cost (UCC) of the class at the end of the year. In general, the UCC at the end of the year is the
UCC of the class at the beginning of the year plus the cost of net additions during the year. However, there are special
adjustments made for property acquired during the year, under the 50% rule.

(Statement 1 is false.) Tanya's photocopier has depreciated in value by $1,100, calculated as (original cost - current
value) or ($3,400 - $2,300). So, Tanya does not have a depreciation expense of $680.
9 Victor operates a successful guiding operation as a sole proprietor. In May, he purchased a new sport
utility vehicle that seats five adults and accommodates all of their gear for $38,000 plus tax. He uses the
vehicle exclusively for business purposes, primarily transporting clients to and from remote fishing
locations. Victor lives in a province with 8% PST and the purchase was also subject to GST. What
statement is true?

1. Victor's capital cost for CCA purposes is $41,040.

2. Victor's adjusted UCC for last year for this class is $16,200.
3. If Victor claimed the maximum CCA for last year, his UCC at the beginning of this year was
$22,680.
4. Victor's vehicle is a class 10.1 passenger vehicle.

Correct

The correct answer: 2 and 4

Your answer: 2 and 4
Solution:

If an individual uses a passenger vehicle to earn income from a business or from property, the Income Tax Act limits the
amount of CCA that can be claimed for that vehicle. Vehicles acquired for more than the prescribed threshold amount
are placed in class 10.1 at a capital cost equal to the prescribed threshold amount, with a maximum CCA rate of 30%.
As a result, these vehicles are referred to as class 10.1 passenger vehicles. The prescribed threshold amount is $30,000,
plus the PST and GST payable on $30,000.

(Statement 2 is true.) Each class 10.1 vehicle must be placed in a separate class and the 50% rule applies. Victor uses
the vehicle exclusively for business purposes, so the GST input credit will offset the GST paid, and GST is not included in
his capital cost. Victor's capital cost is deemed to be $32,400, calculated as (threshold of $30,000 + ((PST x $30,000))
or ($30,000 + (8% x $30,000)). So, Victor's adjusted UCC for the purpose of calculating the allowable CCA is $16,200,
calculated as (UCC at beginning of year + (net additions x 50%)) or ($0 + ($32,400 x 50%)).

10 Two years ago on November 30th, Francine purchased a duplex that she intended to rent out to earn
rental income. Despite the fact that the building was in perfect condition when Francine bought it, she
was unable to find tenants for the building until February 1st of this year because she had misjudged
the market. When was Francine's building available for use for CCA purposes?

Correct

The correct answer: November 30th two years ago

Your answer: November 30th two years ago
Solution:

If a taxpayer acquires a depreciable property that is a rental building, it is normally available for use when purchased, as
long as it can be used immediately as a rental building.

Francine purchased the duplex on November 30th two years ago, and it was suitable for renting at that time. So,
Francine's building was available for use on November 30th two years ago.

11 Greta owns and operates a summer camp and she owns a number of canoes, rowboats and paddle boats
that fall into Class 7, which has a maximum CCA rate of 15%. Her UCC at the beginning of last year was
$6,400. She sold some old canoes for a total of $350, and bought two new paddleboats for $500 each
and a new kayak for $600. What was the maximum amount of CCA that Greta could claim last year?
Correct

The correct answer: $1,053.75

Your answer: $1,053.75
Solution:

If a taxpayer acquires depreciable capital property during the taxation year, she can usually claim only one-half of the
net additions to a CCA class for that year. Net additions are calculated as the capital cost of all new additions, minus the
proceeds of any dispositions from that same class. This is known as the 50% rule. When filling out the capital cost
allowance schedule, the full cost of net additions is added to the UCC at the beginning of the year to arrive at the
unadjusted UCC. The adjusted UCC is then calculated as the UCC at the beginning of the year plus 50% of net additions
during the year. The CCA rates are applied to the adjusted UCC.

(Choice D) Greta has net additions of $1,250, calculated as (cost of 2 paddleboats + cost of kayak - proceeds from sale
of canoes) or ($500 + $500 + $600 - $350) and she can only claim CCA on 50% of net additions. So, Greta could claim
maximum CCA of $1,053.75, calculated as (CCA rate x (UCC at the beginning of last year + (net additions x 50%))) or
(15% x ($6,400 + ($1,250 x 50%))).

12 Doris owned a duplex that she used to generate rental income. She originally acquired the property for
$260,000, with $200,000 attributed to the building. Over the years, she has claimed CCA of $32,000,
such that her UCC at the beginning of the year was $168,000. This year, she sold the property for
$214,000, with $160,000 attributed to the building. Which of the following statements is TRUE?

Correct

The correct answer: Doris has a terminal loss of $8,000.

Your answer: Doris has a terminal loss of $8,000.
Solution:

Whenever a taxpayer disposes of a depreciable capital property, she must subtract the lesser of the proceeds of the
disposition and the capital cost from the UCC. If the UCC of a class of assets is positive at the end of a taxation year, and
there are no longer any assets remaining in that class, the taxpayer has a terminal loss.

(Choice A is true.) Doris originally acquired the building for $200,000 and her UCC at the beginning of the year was
$168,000. She received $160,000 for the building. Doris' UCC after the disposition was $8,000, calculated as (UCC at
beginning of year - (lesser of proceeds and capital cost)) or ($168,000 - (lesser of $160,000 and $200,000). So, Doris
has a terminal loss of $8,000 because the UCC of this class was positive at the end of the year and no assets remained
in that class.

13 Mario is self-employed and he owns two trailers that fall into class 10 with a maximum CCA rate of 30%.
The two trailers are the only two assets in that class. He had purchased the trailers, which are identical,
at the same time for $2,000 each. His UCC at the beginning of the year for the class was $1,500. He sold
one of the trailers for $400 in November and he did not acquire any more until the following year.
Assuming Mario claims the maximum allowable CCA for the year, which of the following statements is
TRUE?

Correct

The correct answer: Mario has neither a recapture, nor a terminal loss.
Your answer: Mario has neither a recapture, nor a terminal loss.
Solution:

Whenever a taxpayer disposes of a depreciable capital property, she must subtract the lesser of the proceeds of the
disposition and the capital cost from the UCC. If the UCC of a class of assets is positive at the end of a taxation year, and
there are no longer any assets remaining in that class, the taxpayer has a terminal loss. However, if assets are still left in
that class, then the taxpayer will realize neither a terminal loss nor a recapture.

(Choice D is true.) Mario's UCC after the disposition is $1,100, calculated as (UCC before disposition - lesser of (net
proceeds and capital cost)) or ($1,500 - (lesser of $400 and $2,000). This is a positive amount and there is still an asset
left in the class. So, Mario has neither a recapture, nor a terminal loss.

14 Peter purchased a luxury sedan for personal use several years ago for $32,000. Peter quit his job as a
corporate executive and started up a consulting business as sole proprietor on January 1st last year. He
began to use the car almost exclusively for business purposes, thereby converting a non-income-
producing asset into an income-producing asset. At that time he began his business, his vehicle had a
FMV of $20,480. The car falls into class 10, which has a maximum CCA rate of 30%. How much can Peter
claim as CCA for his vehicle on his tax return for last year?

Correct

The correct answer: $3,072

Your answer: $3,072
Solution:

If a property is changed from non-income to income-producing use, the Income Tax Act deems a disposition to have
occurred. The deemed disposition affects the capital cost of the "new" income producing property for subsequent CCA
purposes. When this conversion takes place, the taxpayer is deemed to have disposed of the property and immediately
reacquired it. The cost of reacquisition is generally determined as follows:

If FMV is less than the original cost of the property, then the capital cost is deemed to be FMV.
If the current FMV is greater than the original cost, the deemed capital cost of the property at the time of its
change of use will be increased to the aggregate of the original cost, plus the taxable portion of any capital gain
resulting from the deemed disposal.

The 50% rule also applies for the year of the deemed disposition.

(Choice B) Peter has converted non-incoming producing property into income producing property. As a result, Peter is
deemed to have disposed of his car and immediately reacquired it at its FMV of $20,480 on January 1 and this becomes
his capital cost. The 50% rule applies. So, Peter can claim CCA of $3,072, calculated as (CCA rate × (UCC at the
beginning of last year + (net additions × 50%))) or (30% × ($0 + ($20,480 × 50%))).

15 Belinda incorporated a business and purchased a franchise license that was valid for five years. Which of
the following amounts is NOT something that Belinda can claim as an eligible capital expenditure?

Correct

The correct answer: cost of the franchise license

Your answer: cost of the franchise license
Solution:

Common eligible capital expenditures are:

the cost of a franchise, right or license for an indefinite period

goodwill, which is the value of a business in excess of the fair market value of the net business assets
incorporation, reorganization and amalgamation costs
certain legal expenses, such as incorporation costs
customer lists

(Choice C) The franchise license is valid for five years, which is a definite period of time. So, Belinda cannot claim the
cost of the franchise license.
16 In what relationship would the individuals typically deal with each other on an arm's length basis for tax purposes?

Correct

The correct answer:

Park and Mabel who are both adults and who are are cousins to each other.

Your answer:

Park and Mabel who are both adults and who are are cousins to each other.

Solution:

The terms, 'arm's length' and 'non-arm's length' are not precisely defined by the Income Tax Act.

However, the Income Tax Act deems that related persons do not deal with each other at arm's length (ITA 251). This is
the case regardless of how they actually conduct their mutual business transactions. Related persons are individuals
connected by blood, marriage or adoption. Therefore, individuals related to a taxpayer include his or her spouse or
common-law partner, any of his or her direct descendants (children, grandchildren, etc.) and their spouses or common-
law partners and the taxpayer's siblings and their spouses or common-law partners. It is important to note that while
the definition of related persons does not include nieces and nephews (ITA 251(2)), for purposes of income attribution, a
minor niece or nephew is considered a related person and therefore, deals with the taxpayer on a non-arm's length
basis.

Usually, unrelated persons deal with each other at arm's length. The key factor in determining whether parties are
dealing with each other at arm's length is whether they have separate economic interests that reflect ordinary
commercial dealings between parties acting in their separate interests. Therefore, a non-arm's length person would
include the taxpayer's relatives (spouse, common-law partner, parents, grandparents, brothers, sisters, brothers-in-law,
sisters-in-law, children, adopted children, and grandchildren), as well as any other party with whom the taxpayer
transacts, if their transactions do not reflect ordinary commercial dealings between parties acting in their separate
interests.

Based on this, only Park and Mabel, who are cousins and therefore, not related to each other, deal with each other on an
arm's length basis.

Even though Jerry and Elaine keep their finances separate, the fact that they are connected through marriage, means
they are related and thereby, automatically deal with each other on a non-arm's length basis. Similarly, Wilfred and
Keisha, as common-law partners deal with each other on a non-arm's length basis. Technically, nieces and nephews are
not related persons however, for tax purposes, a minor niece or nephew is captured under the definition of a related
person. Consequently, Rishaan deals with his minor niece, Anaisha, on a non-arm's length basis.

17 Which of the following individuals CANNOT deduct some or all of their interest expense from their
business or property income?

1. Sylvia, who borrowed $40,000 from her husband in the form of a 2-year loan for value for the
purpose of investing in the common stocks of a blue chip financial services company.
2. George, who used the $60,000 that he received from his estranged father as a gift to purchase
new equipment for his business. Although the money was supposed to be a gift, George decided
to pay his father back with interest because he did not want to feel indebted to him.
3. Bonnie, who borrowed $140,000 from the bank to purchase a home from which she operates her
business.
4. Farrah, who borrowed $400,000 from her father for the purpose of constructing a riding arena for
her new horse boarding and training business. She has agreed to repay the loan over 10 years at
an interest rate of 2% compounded monthly.
Correct

The correct answer: 2 only

Your answer: 2 only
Solution:

In general, the Income Tax Act allows a taxpayer to deduct the interest on loans that were used for the purpose of
earning business or property income. This is as long as the taxpayer has a legal obligation to pay the interest, regardless
of whether or not the loan was of commercial value. As long as the investment has the potential to produce property
income, the interest expense deduction will be permitted.

Although the main objective of an investment in common shares is capital appreciation, there is the potential for
dividend income, particularly with blue chip companies, so the interest expense deduction will be permitted. George is
not obliged to pay his father interest. So, George cannot deduct the interest from his business income.

18 Harish gave shares of Body Electric Inc. to his wife, Rhonda. Body Electric is a fitness and yoga apparel
company; it is a taxable, Canadian corporation that is publicly traded on the TSX. At the time the
shares were gifted to Rhonda, they had an ACB of $6,000 and a fair market value of $8,500. This year,
after Rhonda received a $200 dividend from Body Electric, she sold the shares for $10,000. What
statement is FALSE?

Correct

The correct answer:

Rhonda must report dividend income of $276 on her tax return this year.

Your answer:

Rhonda must report dividend income of $276 on her tax return this year.

Solution:

If an individual gifts capital property to his or her spouse, under the spousal rollover rules, it automatically rolls over
to the spouse at the adjusted cost base. This means that the transferor will be deemed to have received proceeds equal
to the original ACB while the transferee will be deemed to have acquired the property at that same ACB. The net result is
that the transfer of ownership of property between spouses will not trigger a taxable event unless an election to opt out
of the automatic rollover is specifically filed by the transferor. However, any property income earned by the
transferee subsequent to the change of ownership will be attributed to the transferor. Furthermore, when the transferee
eventually disposes of the property, the capital gain will be attributed to the transferor.

Attributed income retains its character for tax purposes so, attributed dividends are subject to the dividend gross-up and
only 50% of capital gains are subject to tax.

Harish gave the shares to his wife, Rhonda, so the spousal rollover applies as does the attribution of property income
and capital gains. Since the dividend paid by Body Electric Inc. is an eligible dividend, the dividend income must be
grossed-up by 138%. This grossed-up dividend (i.e. the taxable dividend) of $276 is attributable to Harish, calculated as
(dividend income x enhanced dividend gross-up) or ($200 x 138%).

19 Each of the following individuals has made a gift of $10,000 to their 17-year-old minor child. Each of the
children invested the money and earned $1,000 in interest income. In which of the following cases will
the income attribution rules apply?
Correct

The correct answer: Teighan, whose son invested in the debt of qualified small business corporations.
Your answer: Teighan, whose son invested in the debt of qualified small business corporations.
Solution:

All attribution rules will cease to apply upon several changes in circumstances, including when:

the taxpayer ceases to be a resident of Canada

either the taxpayer or the designated person dies
in the case of the related minor, if the designated person turns 18 years of age before the end of the year (ITA
74.1(2))

(Choice D) Teighan did not cease to be a resident of Canada, neither she nor her son died, nor did her son turn 19
before the end of the year. So, the income attribution rules will still apply to Teighan.

20 Angelo and Olivia just separated, but they have hopes of a reconciliation and do not plan to formalize
their divorce for at least three years. In accordance with their settlement agreement, Angelo will
transfer his stock portfolio to Olivia. The ACB of Angelo's portfolio is $46,000 and it is currently valued
at $98,000. Angelo wants to make use of the spousal rollover rule to avoid realizing a capital gain at the
time of the transfer. Which of the following statements are TRUE?

1. Angelo cannot make use of the spousal rollover rule because they are no longer considered to be
spouses.
2. Any dividend income that Olivia earns next year will be attributed to Angelo.
3. If Olivia liquidates the portfolio next year, any resulting capital gains will be attributed to Angelo.
4. If Olivia earns dividend income or realizes capital gains next year, they will be taxed in her own
hands.

Correct

The correct answer: 3 only

Your answer: 3 only
Solution:

The spousal rollover is still available for transferring property in settlement of a separation or divorce agreement.
Normally, if a taxpayer gives property to his spouse, the resulting property income or property losses, as well as any
capital gains or losses, are attributed to the taxpayer. However, while a couple is living separate and apart due to a
breakdown in their relationship, the attribution of property income or losses ceases upon separation. During this period,
though, capital gains will still be subject to attribution, unless both spouses agree that the gains will not be attributed.
This attribution will continue until the couple jointly elects out of this provision. Often, this will be required before a
divorce can be finalized.

Angelo and Olivia have not finalized their divorce, so at this point they are just separated. The attribution of property
income will cease, but the attribution of capital gains will continue. So, if Olivia liquidates the portfolio next year, any
resulting capital gains will be attributed to Angelo.

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