Michael Chan purchased 100% of the issued shares of Quality Rest Inc., a Canadian-controlled private corporation, which owns and operates an assisted-living retirement home in Ontario. Quality Rest has a December 31 fiscal year end. The transaction closed on October 1, 2020. At that time, the values of certain assets owned by Quality Rest were as follows:

	Cost	UCC	FMV
Land	$120,000	N/A	$300,000
Building	240,000	90,000	290,000
Furniture and fixtures	100,000	65,000	50,000
Computer equipment	12,000	6,000	8,000
Inventory	55,000	N/A	52,000
Marketable securities	24,000	N/A	10,000
Incorporation/organization costs	10,000	1,000	375

Michael selected December 31, 2020 as the first fiscal year-end for Quality Rest after the acquisition. The following is a schedule of Quality Rest's income and unused losses for the period January 1, 2019 through December 31, 2021.

	Business Income (loss)	Taxable Capital gain	Net capital loss
January 2019 December 31, 2019	($100,000)	$ Nil	($22,000)
January 1, 2020 September 30, 2020	(200,000)	Nil	Nil
October 1, 2020 December 31, 2020	(70,000)	Nil	Nil
January 1, 2021 December 31, 2021	40,000	10,000	Nil

Required:

Assuming Quality Rest does not make an election to recognize accrued gains or recapture under paragraph 111(4)(e) of the Income Tax Act:

1(a). Calculate the business loss for tax purposes for the period January 1, 2020 through September 30, 2020.

1(b). State the tax value (e.g., ACB, UCC) for each of the assets at October 1, 2020.

1(c). What conditions must be met in order for the non-capital losses incurred in the period January 1, 2019 through December 31, 2020 to be deductible by Quality Rest in 2021 and future taxation years?

1(d). What is the maximum amount of non-capital losses that can be deducted for the year ended December 31, 2021?

1(e). What is the maximum amount of net capital losses that can be claimed for the year ended December 31, 2021?.

2. Assume Michael expects to be able to use Quality Rests losses by amalgamating Quality Rest with another corporation that he owns. What are the implications if Michael elects under ITA 111(4)(e) to recognize capital gains and recapture at September 30, 2020?

Select the asset(s) eligible for the election:

Ignore your previous choice(s) and assume that an election can and will be made on land. At what amount of elected proceeds will Michael be able to utilize all expiring losses?

3. Michael is the sole shareholder of two other corporations, Michael Foods Ltd. which operates a food distribution business (annual profits $600,000) and RelaxCo which operates a retirement home (annual profits $200,000). Both corporations are located in Ontario. Which one of these two corporations should be amalgamated with Quality Rest in order to save income tax? Explain.