Question

Fred Footloose is at it again. In 2019, he returned to his Waterloo home after spending three (3) years in Moose Jaw. When he moved to Moose Jaw in 2016, he had leased his house to a group of university students — you know, the really responsible accounting students. It was good to be back in the Waterloo home that was purchased in 2011 for $200,000. To live in Moose Jaw, he had purchased a house in the “nice” part of town for $80,000 since real estate is so inexpensive there. In 2019, he not only sold the house in Moose Jaw, but he also sold the farmhouse he had inherited from his parents in 2008 (the actual farm acreage was given to his brother). Being a big old farm in the middle of the country, the house was valued at $75,000 at that time. Fred’s family had liked vacationing in the country each summer for as long as anyone could remember. The family was older now and preferred to vacation at the beach, and the local town had sprawled into a city that would shortly engulf the farm property. So, the Moose Jaw property was sold for $95,000, and the farm property was sold for $155,000 to buy a cottage in northern Ontario for $250,000. The only out-of-pocket costs were the $5,500 for real estate fees on the Moose Jaw sale and legal fees of $500 on each sale. A review of Fred’s files shows that a real estate agent had tried to get him to sell his Waterloo house in 2016 when he had moved. The agent had assured him that the house was worth at least $300,000. Now, it appears that the house is only worth $285,000.

Required: Assume that the FMV (Fair market value) of the home is $285,000, and the home is to be sold in 2019. What is the minimum taxable capital gain (TCG) that would need to be reported on the sale of the three (3) properties by considering whether a 45(2) election concerning Principal Residence (PR) should be be made or not. Show all calculations, whether or not directly important to the final answer.

Answer 1