Ms. Maya Regierk wants to transfer the assets of her unincorporated wholesaling business to a newly incorporated company of which she is the only shareholder. She has just received the pro forma financial statements that you prepared as at December 31, 2019 and wants to transfer the assets by January 1, 2020.

Maya wants to avoid triggering any income tax on the transfer. Liabilities of the proprietorship, except for the mortgage, are to be assumed by the corporation, first, in payment for assets transferred to the corporation other than under a subsection 85(1) election and, then, in payment for assets transferred to the corporation by a subsection 85(1) election. The mortgage is to be assumed by the corporation in partial payment for the land and the building. New debt is to be issued (to the nearest $100) by the corporation to the maximum that will permit a full deferral of unrealized income on assets transferred. She will own only common shares after the transfer.

The following is the pro forma balance sheet of Maya Wholesaling, as at December 31, 2019, along with expected fair market values at that time. The proprietorship has used the same asset values and depreciation for accounting and tax purposes.

Maya Wholesaling

(a sole proprietorship)

Pro Forma Balance Sheet

as at December 31, 2019

Assets	Book Value	FMV
Cash	14,200	14,200
Marketable securities, at cost	13,000	7,600
Accounts receivable (face value: $138,800; reserve: $10,900)	127,800	109,300
Inventory	28,400	40,400
Prepaid insurance	3,300	3,300
Land in Waterloo held for speculation, at cost	54,600	273,000
Fixed assets (see schedule below)	182,300	298,700
	423,600	746,500
Liabilities and Proprietors Equity
Bank loan	68,800
Accounts payable and accrued liabilities	95,100
Mortgage on land and buildings	101,600
	265,500
Owner's capital	158,100
	423,600

Maya has indicated that she has recently received an unsolicited offer of $746,500 for all of the assets of his business together (without the assumption of liabilities). This amount appears to be a good indication of the fair market value of her business.

Schedule of Fixed Assets

	Cost	UCC	FMV
Land	87,400		103,800
Class 1 (building)	60,100	47,000	92,900
Class 8 (office furniture)	54,600	24,000	20,800
Class 10 (automotive equipment; no accrued capital gains on any asset)	41,200	17,500	15,300
Class 12 (computer software)	5,500	Nil	2,200
Class 14.1 (intangibles)	9,800	6,400	63,700

Required:

Analyze in technical detail the following issues in preparation of your advice to Maya.

(a) With respect to the assets described above consider:

(i) which assets should be transferred to the corporation under a subsection 85(1) election.