A. Assess the situation. B. Identifty The Issues. C. Analyze The Issues. D. Advise/Recommend

ITA: 54, 83(2), 8 88(2), 89(1) (B) Determine the components of the distribution to the sharehole (C) Compute the taxable capital gain or allowable capital loss on the disposition of Ms. Bast's shares on the winding-up (Assume the adjusted cost base of Ms. Bast's common shares is $10,000.) (D) Explain the conditions for and advantages of using a section 22 election Problem 8 Authors Note: Problem 8 in Chapter 21 addresses the GST/HST implications for this problem. The GST/HST solution may be used in conjunction with this solution or as a separate assignment. You have been approached by Mr. Sidney Chow, a Canadian resident, for advice on the sale of his business. He would like to know whether he should keep his corporation after the sale. He wants to understand how much tax he will pay on the sale and how much he would have available to invest after the sale of the business, He is considering an offer from a corporate purchaser who will buy the business assets from Chow Enterprises Ltd. (CEL) and continue the business. The purchase will take place on December 31 and the selling price of the assets will be their fair market value at that time (see information below). Mr. Chow purchased all the common shares of CEL from the company on incorporation in 2007 The following information on Chow Enterprises Ltd. has been prepared: Chow Enterprises Ltd. BALANCE SHEET as at December 31, 2020 Tax Value FMV Cost $ 10,000 $ 10,000 18,000 $ 30,000 (5,000) Cash Accounts receivable ....... Less: reserve for doubtful debts Land Building (Class 1) - UCC Equipment (Class 8) - UCC Goodwill (Class 14.1) - UCC 25,000 55,000 95,000 12,000 15,150 $212,150 150,000 320,000 3,000 120,000 $ 55,000 170,000 30,000 50,000 $621,000 Liabilities ..... Future income taxes Common shares - PUC Other surplus $ 35,000 12,000 20,000 145,150 $212,150 Additional Information (1) Goodwill was acquired in 2010 in connection with a similar business which was purchased that year. The fair market value reflects the goodwill for the combined businesses. (2) The corporation has a GRIP balance of nil. (3) Sidney is in the top personal tax bracket. Sidney is wondering if he should instead sell the shares of the corporation and wants to know what share price he should sell the shares for. (4) The company has a non-eligible RDTOH balance of $5,000 and a capital dividend account balance of $8,000. (5) Sidney is also wondering about the HST implications of the asset sale (optional) (6) The corporate tax rate for income eligible for the small business deduction is 4%. For income in excess of the small business limit the provincial tax rate is 12% 116,850 ITA: 54, 83(2), 8 88(2), 89(1) (B) Determine the components of the distribution to the sharehole (C) Compute the taxable capital gain or allowable capital loss on the disposition of Ms. Bast's shares on the winding-up (Assume the adjusted cost base of Ms. Bast's common shares is $10,000.) (D) Explain the conditions for and advantages of using a section 22 election Problem 8 Authors Note: Problem 8 in Chapter 21 addresses the GST/HST implications for this problem. The GST/HST solution may be used in conjunction with this solution or as a separate assignment. You have been approached by Mr. Sidney Chow, a Canadian resident, for advice on the sale of his business. He would like to know whether he should keep his corporation after the sale. He wants to understand how much tax he will pay on the sale and how much he would have available to invest after the sale of the business, He is considering an offer from a corporate purchaser who will buy the business assets from Chow Enterprises Ltd. (CEL) and continue the business. The purchase will take place on December 31 and the selling price of the assets will be their fair market value at that time (see information below). Mr. Chow purchased all the common shares of CEL from the company on incorporation in 2007 The following information on Chow Enterprises Ltd. has been prepared: Chow Enterprises Ltd. BALANCE SHEET as at December 31, 2020 Tax Value FMV Cost $ 10,000 $ 10,000 18,000 $ 30,000 (5,000) Cash Accounts receivable ....... Less: reserve for doubtful debts Land Building (Class 1) - UCC Equipment (Class 8) - UCC Goodwill (Class 14.1) - UCC 25,000 55,000 95,000 12,000 15,150 $212,150 150,000 320,000 3,000 120,000 $ 55,000 170,000 30,000 50,000 $621,000 Liabilities ..... Future income taxes Common shares - PUC Other surplus $ 35,000 12,000 20,000 145,150 $212,150 Additional Information (1) Goodwill was acquired in 2010 in connection with a similar business which was purchased that year. The fair market value reflects the goodwill for the combined businesses. (2) The corporation has a GRIP balance of nil. (3) Sidney is in the top personal tax bracket. Sidney is wondering if he should instead sell the shares of the corporation and wants to know what share price he should sell the shares for. (4) The company has a non-eligible RDTOH balance of $5,000 and a capital dividend account balance of $8,000. (5) Sidney is also wondering about the HST implications of the asset sale (optional) (6) The corporate tax rate for income eligible for the small business deduction is 4%. For income in excess of the small business limit the provincial tax rate is 12% 116,850