Norm Bass has just met with you to ask your advice on the possible merger of this two

companies. Norm, a Canadian resident, owns 100% of Normpar Inc., which in turn owns 100%

of Jonsub Inc. Both are Canadian companies located in Saskatchewan and both have December

31st year-ends.

The shares of Jonsub were purchased five years ago at a cost of $4,000,000. The first few years

were profitable and in the second year of ownership Jonsub paid a dividend of $500,000 to

Normpar, but the last two years have not been good as Jonsub has realized non and net capital

losses. It is unlikely that Jonsub will generate sufficient income to absorb the losses in the

foreseeable future. However, Normpar expects to generate sufficient business income and

taxable capital gains to absorb all of Jonsub's losses.

Norm has heard that he could amalgamate the two companies or wind up Jonsub into

Normpar, so Normpar could offset its income with the losses.

Norm would like your advice on when Normpar can gain access to the losses of Jonsub if the

two companies merge on June 30, 2016, either by amalgamating or by winding up Jonsub into

Normpar. After the transaction, they want to retain the December 31st year end. Norm is also

concerned about what will happen to the $4.0 million ACB that Normpar has in the shares of

Jonsub after amalgamation or wind up.

The balance Sheet of Jonsub Ltd. immediately before the merger is as follows:

Assets

Cash $80,000

Accounts receivable (net of $30,000 reserve) 800,000

Inventory at cost (FMV $920,000) 920,000

Land at cost (FMV $2,000,000) 1,200,000

Building at UCC (FMV $500,000) 300,000

Equipment at UCC (FMV $150,000) 200,000

Goodwill (FMV $500,000) 0

Total Assets $3,500,000

Liabilities and Shareholder's Equity

Accounts payable and accrued liabilities 709,000

Loans payable 700,000

Share capital 1,000

Retained Earnings 2,090,000

$3,500,000

Other Information

1) The fair market value of the land and building at the time Normpar Ltd. acquired control

were $1.9 million and $400,000, respectively

2) The fair market value of goodwill developed by Jonsub Ltd. (i.e. not purchased) was

$300,000

3) Jonsub has the following losses:

a. Non Capital losses - $43,000 from 2014; $7,000 from 2013

b. Net capital losses- $14,000 from 2014; $10,000 from 2013

Required

(A) Advise both Jonsub and Normpar on the tax consequences of an amalgamation.

(B) Advise both Jonsub and Normpar on the tax consequences of a winding-up

*Hint: Remember that there is a disposition at the corporate level and a disposition at the

shareholder level. Remember to talk about losses.