AP 17-8 (Sale of Assets vs. Shares) Naimo Ltd. is a CCPC that was incorporated in British Columbia in 2007 by its incorporator and sole shareholder, Mr. Roger Naimo. The companys taxation year end is December 31. Naimo Ltd. operates a successful restaurant on Vancouver Island that includes catering. Roger had frst opened the restaurant as a sole proprietor in 1998. His accountant convinced him in late 2006 that it was time to incorporate, which led to the creation of the company in early 2007. The busi-ness and all of its assets and liabilities were transferred to the company using the rollover rule of ITA 85(1). Roger acquired 100 common shares for $15,000 at the time of incorporation. No other shares have been issued since. In recent years there has been an acceleration in new residential and commercial construction fol-lowed by a proliferation of new restaurants and plenty of competition. Roger has been approached by two different investorsone proposes to acquire all of the shares of the corporation for $800,000 and the second to acquire all of the assets, including assuming any outstanding liabili-ties, for a net payment of $953,800. If the assets are sold, Roger plans on winding up the company after paying of any outstanding corporate taxes and distributing any remaining cash to him. Roger has decided to sell and move somewhere else where it is a little quieter. He has asked his accountant for advice on which ofer he should accept. The accountant has prepared the fol-lowing statement dated December 1, 2021, which contains a list of assets and liabilities, their tax costs, and FMV as of that date determined by a local business valuator. The FMVs will serve as the basis for the asset sale and assumption of corporate liabilities. If there is a sale of shares the transaction will close on December 31, 2021. If Roger decides on a sale of assets all sales and assumption of liabilities will be concluded by December 18, 2021, with the company being formally dissolved December 31, 2021. Naimo Ltd. has never owned investments and therefore has no investment income. All of its income is from an active business, which has never exceeded its small business limit. There are no associated companies and, in 2020, its adjusted aggregate investment income was nil and its taxable capital employed in Canada was less than $1 million. Assume that its net active business income for 2021 prior to the sale of shares or assets is $284,000. Naimo Ltd. Statement of Net Assets At December 1, 2021 Tax Costs FMV Accounts receivable $ 22,700 $ 19,000 Inventory 46,500 57,700 Restaurant building 284,000 755,000 Restaurant building land 134,000 217,000 Kitchen equipment 34,100 62,900 Kitchen utensils Nil 5,200 Delivery van 1,800 17,000 Goodwill Nil 220,000 Total assets $ 523,100 $1,353,800 Accounts payable ( 94,100) ( 94,100) Mortgage payable ( 306,000) ( 306,000) Net assets $ 123,000 $ 953,700 Based on tax costs, the components of the net asset tax cost balance are as follows: PUC $ 15,000 Capital dividend account (CDA) Nil Income retained (surplus) 108,000 Total net asset balance $123,000 Other Information: A. The tax costs shown for each of the restaurant building, the kitchen equipment, kitchen uten-sils, and the delivery van are the undepreciated capital cost (UCC) as of January 1, 2021. B. The capital cost of the building is $466,000, the kitchen equipment $115,000, the kitchen utensils $16,300, and the delivery van $44,000. C. If the assets are sold no CCA can be claimed in 2021 since the company will have no depre-ciable assets on hand on the last day of its final taxation year as a result of the dissolution on December 31, 2021. D. The shares of the company qualify for the capital gains deduction. Rogers available capital gains deduction immediately prior to a sale of shares or assets is $116,472, and his cumula-tive net investment loss account is nil. E. The ACB and PUC of the common shares are both $15,000. F. On January 1, 2021, the company has a nil balance in its GRIP account. G. The provincial corporate tax rate on income that qualifies for the small business deduction is 2% and is 12% on all other income, including investment income and capital gains. H. The company has nil balances at January 1, 2021, in both its eligible and non-eligible RDTOH. I. The companys CDA balance at the time of a sale of shares or assets is nil. J. The company has a 2019 non-capital loss balance of $49,600 and no net capital losses. K. No dividends were paid during the previous two years. L. The 2021 provincial dividend tax credit credit rate on non-eligible dividends is 15% of the gross up and 36.3% of the gross up for eligible dividends. M. Assume that any income received by Roger as dividends and capital gains will be subject to the highest federal personal tax rate of 33% and that the BC rate is 20.5%. N. Assume that on a sale of assets no ITA 22 election will be fled for the accounts receivables since the amounts are not considered significant enough. Required: 1. Determine which of the two offers Roger should accept in terms of maximizing his after-tax cash retention. For the sale of assets you will have to calculate the companys net and taxable income, federal and provincial income taxes payable, RDTOH account bal-ances including any eligible and non-eligible dividend refund(s), the CDA, and the GRIP balance. You will also have to determine the eligible and non-eligible dividend and capital gain components of the distribution to Roger as a result of the winding-up of Naimo Ltd. Ignore any alternative minimum tax implications and assume that all appropriate elections, designations, and flings will be made on a timely basis to minimize personal income taxes. On the sale of shares, consider that Roger will maximize the use of his capital gains deduction. 2. What non-tax advantages and disadvantages should you, as Rogers accountant, communi-cate to him that may influence his ultimate decision.