Final answer:
The correct answer to the tax consequences and attribution rules when transferring property to a spouse is Option D: the property is typically transferred at adjusted cost base and the transferor is liable for tax on subsequent income and capital gains, unless there is an election to transfer at fair market value and the recipient spouse pays that value.
Step-by-step explanation:
Tax Consequences and Attribution Rules for Property Transferred to a Spouse
When a property is transferred to a spouse, the tax consequences and the attribution rules regarding income and capital gains realized from the property are important considerations. The correct choice in the given multiple choice question is Option D. Here it states that (1) the property would be deemed transferred at its adjusted cost base (ACB), unless an election was filed, to have a transfer at fair market value (FMV). It continues that (2) any subsequent income and capital gains would be attributed back to the transferor unless both (a) the FMV election was filed on the transfer and (b) FMV consideration was paid by the recipient spouse.
This means that typically, transferring property to a spouse involves a rollover at the property's ACB, so no immediate tax is levied. However, the income (such as rent) and capital gains generated from the transferred property are usually attributed back to the person who transferred the property, meaning they are liable for the tax on these earnings. If the transferor wants to avoid this income attribution, they can do so by choosing to transfer the property at FMV and making sure the recipient spouse pays this FMV.