Carla Armitage owns 100% of the common shares of Extra Ltd., a Canadian-controlled private corporation operating a wholesale business in eastern Canada. Extra's fiscal year-end is May 31 , 2022. It is now April 15, 2022, and Carla has just signed a letter of intent to sell the wholesale business to Q Ltd. The initial discussions involved the sale of specific assets of Extra, but a sale of the shares the company may also be considered. Carla has requested your assistance in estimating the tax liability to Extra if the business assets are sold. Information relating to the sale and to the current year's operating income is provided below. 1. The balance sheet of Extra at May 31, 2022, is estimated as follows: 2. Net income before income tax and net gains from the sale of assets for the year ended May 31 , 2022, are estimated as follows: The following additional information relates to the net income: - The dividend income is eligible dividends received from a Canadian public corporation, the shares of which were sold during the year for proceeds equal to their original cost. - Expenses deducted from revenues included the following items: 3. The 2021 income tax return indicates the following tax account balances: 4. The letter of intent regarding the sale of the business indicates that the closing date will be May 31, 2022. The letter included the following list of assets to be sold, together with each asset's estimated market value. For information, the original cost of each asset is provided in the chart below. Payment for the above assets would consist of cash plus the assumption of Extra's liabilities. 5. You have suggested to Carla that she consider selling the common shares of Extra, rather than the specific assets. You have estimated the market value of the shares to be $920,000. The shares were acquired in 2014 for a cost of $108,000. In previous years, Carla had used the capital gain deduction to exempt from tax $128,000 of gains. Her cumulative net investment loss (CNIL) at the end of 2021 is estimated to be $44,000. Required: 1. Determine the active business income, aggregate investment income, increase to the capital dividend account, and increase to the non-eligible refundable dividend tax on hand resulting from the sale of the assets. (If an item is not relevant, leave it blank.) Carla Armitage owns 100% of the common shares of Extra Ltd., a Canadian-controlled private corporation operating a wholesale business in eastern Canada. Extra's fiscal year-end is May 31 , 2022. It is now April 15, 2022, and Carla has just signed a letter of intent to sell the wholesale business to Q Ltd. The initial discussions involved the sale of specific assets of Extra, but a sale of the shares the company may also be considered. Carla has requested your assistance in estimating the tax liability to Extra if the business assets are sold. Information relating to the sale and to the current year's operating income is provided below. 1. The balance sheet of Extra at May 31, 2022, is estimated as follows: 2. Net income before income tax and net gains from the sale of assets for the year ended May 31 , 2022, are estimated as follows: The following additional information relates to the net income: - The dividend income is eligible dividends received from a Canadian public corporation, the shares of which were sold during the year for proceeds equal to their original cost. - Expenses deducted from revenues included the following items: 3. The 2021 income tax return indicates the following tax account balances: 4. The letter of intent regarding the sale of the business indicates that the closing date will be May 31, 2022. The letter included the following list of assets to be sold, together with each asset's estimated market value. For information, the original cost of each asset is provided in the chart below. Payment for the above assets would consist of cash plus the assumption of Extra's liabilities. 5. You have suggested to Carla that she consider selling the common shares of Extra, rather than the specific assets. You have estimated the market value of the shares to be $920,000. The shares were acquired in 2014 for a cost of $108,000. In previous years, Carla had used the capital gain deduction to exempt from tax $128,000 of gains. Her cumulative net investment loss (CNIL) at the end of 2021 is estimated to be $44,000. Required: 1. Determine the active business income, aggregate investment income, increase to the capital dividend account, and increase to the non-eligible refundable dividend tax on hand resulting from the sale of the assets. (If an item is not relevant, leave it blank.)
