Question 5

The president of Purchaser Inc. (Purchaser) is planning to have the company acquire all the shares of Target Inc. (Target) on September 1, 2019. He has asked you to calculate what losses will be available in Target after he acquires it and explain the future deductibility of those losses after the purchase.

Target manufactures paper products, whereas Purchaser is a wholesaler of office supplies and equipment. Both companies are Canadian-controlled private corporations and have August 31 year ends. The loss carryovers of Target are expected to be as follows:

The president of Purchaser Inc. (Purchaser) is planning to have the company acquire all the shares of Target Inc. (Target) on September 1, 2019. He has asked you to calculate what losses will be available in Target after he acquires it and explain the future deductibility of those losses after the purchase. Target manufactures paper products, whereas Purchaser is a wholesaler of office supplies and equipment. Both companies are Canadian-controlled private corporations and have August 31 year ends. The loss carryovers of Target are expected to be as follows: Non-Capital Losses Net Capital Losses 2015 . $300.000 $ 50,000 2016. 250,000 2017 . . . . 200,000 2018 . 150,000 100,000 2019 . . .. 50,000 On August 31, 2019, Target will have the following assets which are still on hand: Cost or Capital Cost UCC FMV Manufacturing Equipment . . . . 1,000,000 NIL 300,000