Purchase and Sale of Assets vs Shares (Taxation)

Question 1

Qualitative considerations

Answer 1

• purchaser prefers direct asset purchase and seller prefer share sale

Question 2

Purchaser considerations

Answer 2

• purchased prefer direct asset purchase because…
• does not assume redundant assets or undisclosed liabilities
• assets are bumped up to FMV (no CG in the future sale)
• goodwill could be present and if purchased you can claim CCA (share purchase would not permit goodwill to claim CCA)

Question 3

Seller considerations

Answer 3

• seller prefers share sale because…
• all assets are purchased at once and all liabilities are assumed
• share sale are only taxed once at the hands of the shareholder where the asset sale is taxed more complicated (CG, deemed dividends and income tax at personal and corporate level)
• LCGE is permitted on the sale of shares but not on the sale of assets

Question 4

Share sale

Answer 4

1) determine CG (POD - ACB)
2) multiply by the inclusion rate (50%)
3) if LCGE is available, apply against CG (can only apply up to 50% of total LCGE balance)
4) apply taxable rate (f any taxable income at this point)
5) determine the after tax proceeds kept by the tax payer

Question 5

Asset sale

Answer 5

1) determine the tax impact on: AII, ABI, CDA, NERDTOH, GRIP
2) determine tax payable on different sources of income
3) determine after tax cash available to redeem shares
4) determine deemed dividend CG/L resulting on redemption of shares
5) personal tax payable as a result of redemption and payout any bonuses to calculate personal tax
6) determine after tax cash kept by the tax payer

Question 6

Asset sale- Tax impact on: ABI, Agg. Inv. Inc. , CDA, NERDTOH, GRIP

Answer 6

• AFDA previously claimed are added back into ABI
• inventory gain to ABI
• non-dep capital property = 50% to CDA, 50% Agg. Inv. Inc.
• dep capital property = terminal loss/recapture, 50% CDA and 50% Agg. Inv. Inc.

Question 7

Deemed Dividend

Answer 7

• cash available to redeem shares - PUC
• taxable portion of deemed dividend is reduced by any CDA paid out

Question 8

Determining personal tax

Answer 8

• income paid out by company (eligible and non eligible dividends and/or bonuses) and multiply by personal tax rate (& gross up rate of dividend recieved)