Mr. Stuart Lagac, a Canadian resident, personally operates a small IT services consultant office. Business is going very well and Mr. Lagac decides to incorporate his commercial enterprise into a joint stock company in the name of Super Lagac Informatique Inc (hereinafter SLI). Mr. Lagac plans to use the rollover provisions of subsection 85(1) of the Income Tax Act (ITA). Here is an extract from SLI's balance sheet as of December 31, 2022.

Good PBR or CC FNACC JVM

Accounts receivable 31000 N/A 28000

Land 90000 N/A 170000

Building 290000 210000 330000

Mortgage on building 200000 N/A 200000

ACB: adjusted cost base (PBR in french)

CC: capital cost (Cout en capital in french)

FMV: fair market value (JVM, Juste Valeur Marchande in french)

The incorporation will take place on January 1, 2023. It is understood that the new joint stock company SLI will also assume the mortgage on the building.

In addition, SLI will issue a note payable and shares for each of the rolled properties under subsection 85(1) ITA.

Work to be done Scenario 1 For each of the three assets to be transferred, in the order in which they are presented on the balance sheet, determine the optimal agreed sum (sc) in order to minimize taxes during the transfer. (1.50pt) Calculate the tax implications for the seller (Mr. Lagac) following the transfer by considering the agreed amount determined in sub-question 1. (3 pt) Tax implications include, among others, business income, taxable capital gain or deductible capital loss, tax depreciation recapture or terminal loss.

Regarding accounts receivable, mention what would be the best way to make the transfer to minimize taxes and calculate the tax implications for the seller according to what you suggest. (1pt) Knowing that Mr. Lagac would like to receive the highest possible non-share consideration per asset, complete the following table to indicate the characteristics of the consideration (both in shares and other than shares) for the land and the building. (3.50 pts)

Property FMV of SC determined Debt FMV note (CAA) FMV of CV of

the property above assumed received shares shares

transfered received received

Ground

Building

Scenario 2 In this scenario, assume that the building is rolled over under subsection 85(1) ITA for an agreed sum of $245,000. The SLI company will assume the mortgage on the building and will also issue a note payable for $30,000.

What are the tax consequences (indicate the figures) for such a rollover for the seller? (1.50pt) What is the FMV, ACB and tax CV of the shares received by Mr. Lagac for the turnover of the building? (2pt) What are the capital cost (cc) and the UCC of the building for the SLI company? (1.50pt)