An investor holds units in a mutual fund corporation. They currently hold 1,000 units of the Growth class, with an ACB of $20 per unit. They perform a 'switch' to 800 units of the Income class within the same corporate structure, when the Growth class units are valued at $25 per unit and the Income class units are valued at $31.25 per unit. If the investor subsequently sells all 800 Income class units for $35 per unit, what is the total capital gain realized on the sale?

Question: An investor holds units in a mutual fund corporation. They currently hold 1,000 units of the Growth class, with an ACB of $20 per unit. They perform a 'switch' to 800 units of the Income class within the same corporate structure, when the Growth class units are valued at $25 per unit and the Income class units are valued at $31.25 per unit. If the investor subsequently sells all 800 Income class units for $35 per unit, what is the total capital gain realized on the sale?

Answer options: ✅ $3,000

• $8,000
• $4,000
• $6,000

Correct answer: $3,000

Explanation: Since it's a switch between corporate classes within the same corporation, no disposition occurs for tax purposes. The original ACB of the Growth class units effectively transfers to the new Income class units. The original total ACB was 1,000 units * $20/unit = $20,000. The market value at switch was 1,000 units * $25/unit = $25,000. When switching, the new 800 units of Income class would have a total ACB of $20,000 (preserving the original ACB). When selling for $35 per unit, the total proceeds are 800 units * $35/unit = $28,000. Therefore, the capital gain is $28,000 - $20,000 = $8,000. Wait, the ratio for the original cost per unit for what is sold needs to be maintained. Since 1,000 units of A were switched into 800 units of B, the total ACB of $20,000 is for the entire 800 units of B. So the per unit ACB of B is $20,000 / 800 units = $25/unit. Selling 800 units at $35 would be gain of $35 - $25 = $10 per unit, times 800 units equals $8,000.