Ch. 31 - Purchase & Sale of Assets Vs. Shares

Question 1

Qualitative Considerations

Answer 1

1. Redundant Assets
2. Undisclosed Liabilities
3. Asset Bump-Up
4. Goodwill Deduction
5. Loss Carryovers
6. Complexity
7. Lifetime Capital Gains Exemption

Question 2

After tax cash for share sale (steps)

Answer 2

1. Determine capital gain by taking selling price less ACB
2. Multiply by 50% for taxable capital gain
3. Consider whether LCGE is available
4. apply marginal tax rate to taxable capital gain
5. After tax cash is selling price less tax paid

Question 3

After tax cash on asset sale (steps)

Answer 3

1. Determine impact on ABI, AII, CDA
2. Determine tax payable on income generated
3. Determine after-tax cash in the corporation
4. Determine deemed dividend and capital gain after redemption of shares
5. Determine personal tax payable on redemption of shares prior to wind-up
6. After tax cash is selling price less tax paid

Question 4

Sale of Assets (ABI, AII, CDA, NERDTOH allocation)

1. Cash

Answer 4

1. no impact

Question 5

Sale of Assets (ABI, AII, CDA, NERDTOH allocation)

1. AR

Answer 5

1. a) any reserve is added back and included in ABI

b) w/o section 22 considered capital; w/ section 22 considered business

Question 6

Sale of Assets (ABI, AII, CDA, NERDTOH allocation)

1. Inventory

Answer 6

1. ABI

Question 7

Sale of Assets (ABI, AII, CDA, NERDTOH allocation)

1. Prepaid expenses

Answer 7

1. no impact (amount paid should match tax value)

Question 8

Sale of Assets (ABI, AII, CDA, NERDTOH allocation)

1. Non-depreciable capital property

Answer 8

1. capital

- taxable portion to AII and non-taxable to CDA

Question 9

Sale of Assets (ABI, AII, CDA, NERDTOH allocation)

1. Depreciable capital property

Answer 9

1. recapture and terminal loss are ABI

2. taxable capital gain - taxable portion to AII and non-taxable portion to CDA

Question 10

Sale of Assets (ABI, AII, CDA, NERDTOH allocation)

1. Goodwill and intangibles

Answer 10

1. recapture and terminal loss are ABI

2. taxable capital gain - taxable portion to AII and non-taxable portion to CDA