Emily gifted $100,000 to her spouse, Mark, who then invested it in an unrelated arm's length corporation's shares. If Mark sells the shares for $120,000, what are the tax implications for the capital gain?

Question: Emily gifted $100,000 to her spouse, Mark, who then invested it in an unrelated arm's length corporation's shares. If Mark sells the shares for $120,000, what are the tax implications for the capital gain?

Answer options: ✅ The $20,000 capital gain is attributed back to Emily.

• The $20,000 capital gain is taxed in Mark's hands.
• The gift is deemed a loan, and interest is attributed to Emily.
• The attribution rules do not apply as it involves shares of an unrelated corporation.

Correct answer: The $20,000 capital gain is attributed back to Emily.

Explanation: Under the spousal attribution rules (ITA 74.1), any capital gains realized from property transferred to a spouse are attributed back to the transferring spouse. Therefore, the $20,000 capital gain will be taxed in Emily's hands.