Module 10B: Introduction to Woodlot - Income Tax and Estate Planning
Appendix 6 - Exercise Answers
Part 1: Income Tax Guide
Exercise 1:
Yes, since she has a management plan and is planting, thinning, etc. instead of just harvesting.
Proceeds of disposition = $60,000 - $1,700 | $ 58,300 |
Adjusted cost base = $25,000 - $10,000 bare land value | 15,000 |
Capital gain | $ 43,300 |
Exercise 3:
($2,500 + 1/2(10,000 – 2,500) = $6,250
Capital Cost Allowance: $36,000 x 20% x ½ (year of purchase) = | $ 3,600 |
Marginal Rate_________________________________________ | 30% |
$ 1,080 | |
Investment Tax Credit: $36,000 x 10%______________________ | 3,600 |
$4,680 |
A.) ATV deduction would be: $9,000 x 75% business use = $6,750 $6,750 x 30% x ½ (first year) = $1,013 |
|
Wood splitter deduction would be $2,000 x 20% x ½____________ | 200 |
$1,213 | |
B.) Depletion allowance = cords harvests/cords documented by cruise x (woodlot cost – bare land value) = 24 cords/2,400 cords x (45,000 – 15,000) = 0.01 x 30,000 = $300 |
Part 2: Estate Planning Guide
Exercise 6:
A) When you die scenario:child’s cost of the property would be deemed to be $15,000 (this assumes the woodlot meets the criteria for qualified farm property, otherwise it would be deemed to be disposed of at fair market value at the time of death).
Give it to her now scenario: Deemed proceeds of disposition would be $15,000 (again, assumed qualified farm property). There would be no gain or loss and a cost of $15,000 for her daughter.
Answer is no difference.
B) Yes, in this case it would be better for Ashley to sell the woodlot to her at a price between $15,000 and $30,000. A selling price of $30,000 would result in a capital gain as follows:
($30,000 - $15,000) x 1/2 = $7,500. This would be offset by her capital loss. The cost of the property to the daughter would be $30,000, reducing her taxes when she disposes of the property in the future.
Proceeds of disposition | $ 25,000 |
Adjusted cost base__________________________________ | 16,000 |
Capital gain | $ 9,000 |
Taxable capital gain (50%) | 4,500 |
Tax on gain (at 40%) | $ 1,800 |
Tax credit for charitable donation: | |
On the first $200 at 24% | $ 48 |
On the balance ($25,000 - $200) at 47%__________________ | 11,656 |
$ 11,704 | |
Tax savings ($11,704 - $1,800) | $ 9,904 |