Ch.31 Purchase and sale of asset

Question 1

Share sale

Answer 1

Step 1:Determine the capital gain by taking the selling price of shares less the adjusted cost base (ACB) of the shares.
Step 2:Multiply the capital gain by 50% to determine the taxable capital gain.
Step 3:If the lifetime capital gains deduction is available, deduct it in order to determine the taxable capital gain that is subject to tax. (Note: The lifetime capital gains deduction is 50% of the exemption amount.) (See the e-book chapter on the capital gains exemption.)
Step 4:Apply the taxpayer’s marginal tax rate to the taxable capital gain subject to tax in order to determine the personal tax payable on the gain.
Step 5:Determine the after-tax cash kept as the selling price for the shares less the personal tax paid on the sale of shares.

Question 2

Asset sale

Answer 2

Step1:determine the effect on active business income (ABI), aggregate investment income (AII), the capital dividend account (CDA) and non-eligible refundable dividend tax on hand (NERDTOH).
Step 2:Determine corporate tax payable on income generated from the sale of assets and on any income generated in the corporation up to the date that the assets are sold.
Step 3:Determine the after-tax cash in the corporation that is available to redeem the shares.
Step 4:Determine the deemed dividend and capital gain or loss that arises as a result of the redemption of shares.
Step 5: Determine personal tax payable as a result of the redemption of shares and any bonus paid to the shareholder prior to winding up the company
Step 6:Determine after-tax cash retained as the difference between the cash used to redeem the shares and the personal tax payable in Step 5.