Acquisition of Control Additional Question Solution

Cost UCC FMV

Marketable Securities $100,000 N/A $600,000
Inventory 66,000 N/A 90,000
Land 180,000 N/A 400,000
Building 240,000 $166,000 360,000
Equipment 170,000 68,000 40,000 - business loss

1) Election available to any non-depreciable or depreciable properties where fair

value is greater than cost/UCC, as a result, the election could be made on:

Marketable securities,
Land
Building

Election made to Marketable securities and land since if an election made on

building or equipment, a recapture would occur, which need to be offset by non-
capital loss. But, the non-capital loss could be carry over to future years.

Net-capital loss by Aug 31, 2020 is $80,000 ($20,000 + $60,000)

To fully utilize the net-capital loss, 160,000 capital gain need to be elected to
either, land or Marketable securities.

Elected amount for land would be $340,000 and securities would be $260,000

2)

Assume: election amount applied to land  ACB = 180,000 + 160,000=340,000

ACB UCC
Marketable Securities 100,000 N/A
Inventory 66,000 N/A
Land 340,000 N/A
Building 240,000 166,000
Equipment 170,000 40,000

Assume: election amount applied to land  ACB = 180,000 + 160,000=340,000

3) ITL：
Business loss (75,000)
Business loss for Equipment (28,000)
Taxable Capital Gain 80,000
Net-Capital Loss (80,000) 0
Net Income $103,000

4) Non-Capital loss: 80,000 + 120,000+103,000 =$303,000

5) In order to deduct the non-capital losses, the IT consulting business, which incurred the
losses, must be carried on throughout the taxation year at a profit or with a reasonable
expectation of profit.

These conditions are met in 2020 and 2021. The IT consulting business is carried on at a
profit throughout both of these years.

The non-capital losses can be deducted to the extent there is income from the business that
incurred the losses (IT consulting) or income from a business selling similar products or
providing similar services as the IT consulting business. In this case there are no similar
businesses being carried on. Non-capital losses of $60,000 and $120,000 can be deducted
in 2020 and 2021, respectively.