Question: Intermediate Accounting and Taxation

CoursHeroTranscribedText: Question 4 {25 Marks; 50 minutes} Stephanie Vivant has requested that you review her current financial position and her proposed plans and provide her with tax advice. In response to her request, you have gathered together the following information: 'v'ivant Corporation Ltd. (VOL) is a Canadian-controlled private corporation that owns several retail clothing stores. Its common shares are owned 80% by Stephanie and 20% by one of her senior manager. Infom'lation relating to the shares is as follows: Stephanie Manager Number of shares 300 200 Paid-up capital $8,000 $ 2,000 Cost 8,000 25,000 In the current year, 'v'CL earned taxable income of $540,000 from the retail operations. It is expected that this level of profit will be maintained next year. 'v'CL has $40,000 in its RDTDH account. VCL is planning to expand into the manufacturing business and is currently negotiating for the purchase ofequipment that will be used to manufacture winter ski jackets. Because the ski jackets have a ready market in her retail stores, profits are expected to be at least $40,000 in the first year. The expansion will be funded by cash generated from the sale of a building. The building was sold last year and resulted in a capital gain of $200,000 to 'v'CL. The funds are currently invested in short-term bank certificates. After a major dispute with the senior manager, it was agreed that early in the new-year, the manager would sell his shares for $120,000, leaving Stephanie with 100% of the company. The parties have not discussed how to structure the transaction. However, Stephanie has indicated to the manager that the full price will be paid in cash. Stephanie personally owns a commercial building that has generated rental revenue for several years. The current lease will end in the near future, and she has decided that rather than renew the lease, she will use the building to open a new retail location. The property was acquired a number of years ago for $100,000 [$30,000 for the building, $20,000 for the land]. To date, she has claimed capital cost allowance totalling $30,000. A recent appraisal indicates that the land is worth $30,000 and the building $90,000. Stephanie wishes to transfer the land and building to VCL. Stephanie contributes the maximum to retirement plans. and her RRSF' currently has a value of $2DD.UDD, consisting solely,f of common share investments. Stephanie's son Eric. who had managed one of the retail stores, has recently been promoted to take on greater management responsibilities. Stephanie has promised Eric that after a two-year period. he can become a 50% shareholder in VCL She wants to know how this can be achieved, considering that Eric will have no money to make the acquisition. Also, Stephanie| is not anxious to pay tax when she restructures the ownership within the family. Required: Prepare a report to Stephanie providing the tax advice she has requested. Include the tax implications to the manager on the proposed sale of shares