Ch. 27 - Acquisition of Control

Question 1

Loss utilization strategies - Section 85

Answer 1

A section 85 can be done to sell income producing asset from profco to lossco, so lossco can produce income and deduct losses from the income

Question 2

Loss utilization strategies - intercompany transactions

Answer 2

Intercompany transactions can be recorded to create income in lossco and expenses in profco. Expenses must be legitimate or the CRA can disallow them.

Question 3

Losses triggered on an acquisition of control

Answer 3

1. Inventory - loss is non capital
2. AR - loss is non-capital
3. Depreciable capital property - losses on assets earning business income are business losses, and losses on assets earning rental income are property losses
4. Non-depreciable capital property - loss is a capital loss

Question 4

Elective capital gains and recapture

• election range
• election options
• why?

Answer 4

• ACB to FMV
• equal to the lesser of:
  1. FMV of property; and
  2. greater of:
  a) ACB of property and
  b) amount designated by the corporation
• To use up accumulated losses

Question 5

Accumulated losses at deemed year-end

- Type and disposition

Answer 5

• only business and farming losses are carried forward, subject to:
  1. the losses must be used against income from similar activities