Question 4 (attribution rule) Martha purchased 10,000 common shares in 2010 of S

Question

Question 4 (attribution rule)

Martha purchased 10,000 common shares in 2010 of SENEDGE INC, a CCPC at $12 per share. Martha gifts her husband 5000 shares and her 14 year old daughter 5000 common shares in 2012, when the common share FMV was $13. Near the end of Dec 2015, SENEDGE INC gave out dividends $1 for each share. The husband and daughter both sell all their shares in 2016 at $16 Determine the taxable income to each individual for each case, write nil if zero

A) Common shares gifted

B) Dividends received 2015

C) Shares sold at 2016

A) Martha Husband Daug hter

B)

C)

Explanation / Answer

A) Common Shares Gifted Gift received from relative is exempt from tax at the time when it is received. In the hands of person who is gifting, sale consideration would be nil, as nothing is received by him/her for gift. So no gain will arise in his/her hands Martha Husband Daughter So Taxable Income in 2012 when common shares gifted in the hands of NIL NIL NIL B) Dividends Received 2015 Dividend received from company is taxfree in the hands of Shareholders Martha Husband Daughter No. Of Shares held NIL 5000 5000 Dividend/share 1 1 Amount of Dividend NIL 5000 5000 Taxable Income in 2015 NIL NIL NIL C) Shares sold at 2016 In case, asset received in gift is sold, Purchased value and Date of Acquisition of Actual/Previous owner will be considered for calculation of Taxable Income. If Shares are hold for more than 12 months, Capital gain would be long term capital gain and if it is less than 12 months, capital gain would be short term capital gain. Martha Husband Daughter Remarks Date of Acquisition of Shares will be of Actual/Previous Owner i.e. Of Martha 2010 2010 2010 Date os sale of Shares 2016 2016 Nature oF Capital Gain Long term Capital Gain Long term Capital Gain As the shares are hold for more than 12 Months Martha Husband Daughter Remarks Costs of Acquisition of Shares will be of Actual/Previous Owner i.e. Of Martha No. Of shares 10000 5000 5000 costs/share 12 12 12 Costs of Acquisition of shares 120000 60000 60000 Martha Husband Daughter Remarks Calculation of Taxable Income Sales Consideration 80000 80000 Cost of Acquisition 60000 60000 Calculated above Taxable Income NIL 20000 20000

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