Question

on november 9 2020 lucy gave her 6 year old daughter some common shares of a public company with an acb of $900,000 and fmv of $1,000,000. which one of the following statements is true select an answer and submit. for keyboard navigation, use the up/down arrow keys to select an answer. a the attribution rules will apply to attribute to lucy any future dividends received by her daughter on the shares. the attribution will continue until the year the daughter turns 18 b lucy will report no gain or loss on the transfer of property this year because it is a gift c lucy will report a $100,000 taxable capitl gain on the gift this year d none of the above

Answer 1

Lucy must report a $100,000 taxable capital gain on the transfer of shares to her 6-year-old daughter, since the transfer of property to a minor child is treated as a sale at fair market value according to tax laws.

Step-by-step explanation:

On November 9, 2020, when Lucy gave her 6-year-old daughter common shares of a public company with an adjusted cost base (ACB) of $900,000 and a fair market value (FMV) of $1,000,000, the correct answer to the student's question is that Lucy will report a $100,000 taxable capital gain on the gift this year. Considering the tax laws and regulations regarding gifts of shares, the Canada Revenue Agency (CRA) deems that a transfer of property, including stocks, to a minor child is made at fair market value. Thus, even though it is a gift, Lucy must report the capital gain, which is the difference between the FMV and the ACB of the shares, on her taxes.

The attribution rules will indeed apply, causing dividends received by the daughter to be attributed back to Lucy until the daughter turns 18. This is also correct; however, since the question specifies to choose one correct statement, and Lucy must report the capital gain in the year of the transfer, this is the most immediate consequence of the transaction. Therefore, the primary choice for this scenario is the taxable capital gain that must be reported.