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Lands and Forestry

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Module 10: 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.

Exercise 2:

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

Exercise 4:

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
Exercise 5:
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.

Exercise 7:

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