Susan Betts is 65 years old and wishes to retire. She is the sole shareholder of Betts Better Designs Ltd., a Canadian controlled private corporation with a December 31 year end. The corporation was incorporated by Susan with an investment of $400,000 five years ago and no additional shares have been issued since. Susan is considering two offers for her corporation to take place on January 2, 2019. Offer #1: Purchase the shares for $800,000. The $800,000 of proceeds for her shares would be received by Susan personally. She has CORRECTLY determined that her after tax cash retained would be $698,000 if she chooses this option. Offer #2: Purchase the corporate net assets for a total of $900.000. The $900,000 of proceeds for the net assets would be received by Betts Better Designs Ltd. triggering recapture and taxable capital gains. If Susan accepts this offer, she intends to wind up the corporation immediately after the assets are sold and distribute any cash to herself. Her accountant has CORRECTLY determined that Betts Better Designs Limited will have the following balances immediately after the disposition of the assets on January 2, 2019. Balance, January 2, 2019 after Disposition of assets Capital dividend account balance (CDA) $250,000 Non-eligible Refundable Dividend Tax on Hand $76,667 Eligible Refundable Dividend Tax on Hand $0 General Rate Income Pool (GRIP) $0 As a consequence of the sale of assets, her accountant has CORRECTLY calculated the combined Part I federal tax and provincial tax payable by the corporation to be $143,867 and the dividend refund to be $76,667 upon distribution of the remaining cash to Susan. Relevant tax rates and credits for Susan: Provincial Federal Combined Income tax rate 18% 33% 51% Dividend tax credits: Eligible dividends 36% 6/11 Non-eligible dividends 23% 9/13 Required: (Show ALL calculations, including those for which the result is nil.) 1. Calculate the after-tax income cash distribution to Susan if she chooses to sell the assets (option 2) Assume the appropriate designations or elections will be made to minimize the taxes payable by Susan. (Ignore any possible implications of the Lifetime Capital Gains Deduction and the Alternative Minimum Tax). (18 marks) Susan Betts is 65 years old and wishes to retire. She is the sole shareholder of Betts Better Designs Ltd., a Canadian controlled private corporation with a December 31 year end. The corporation was incorporated by Susan with an investment of $400,000 five years ago and no additional shares have been issued since. Susan is considering two offers for her corporation to take place on January 2, 2019. Offer #1: Purchase the shares for $800,000. The $800,000 of proceeds for her shares would be received by Susan personally. She has CORRECTLY determined that her after tax cash retained would be $698,000 if she chooses this option. Offer #2: Purchase the corporate net assets for a total of $900.000. The $900,000 of proceeds for the net assets would be received by Betts Better Designs Ltd. triggering recapture and taxable capital gains. If Susan accepts this offer, she intends to wind up the corporation immediately after the assets are sold and distribute any cash to herself. Her accountant has CORRECTLY determined that Betts Better Designs Limited will have the following balances immediately after the disposition of the assets on January 2, 2019. Balance, January 2, 2019 after Disposition of assets Capital dividend account balance (CDA) $250,000 Non-eligible Refundable Dividend Tax on Hand $76,667 Eligible Refundable Dividend Tax on Hand $0 General Rate Income Pool (GRIP) $0 As a consequence of the sale of assets, her accountant has CORRECTLY calculated the combined Part I federal tax and provincial tax payable by the corporation to be $143,867 and the dividend refund to be $76,667 upon distribution of the remaining cash to Susan. Relevant tax rates and credits for Susan: Provincial Federal Combined Income tax rate 18% 33% 51% Dividend tax credits: Eligible dividends 36% 6/11 Non-eligible dividends 23% 9/13 Required: (Show ALL calculations, including those for which the result is nil.) 1. Calculate the after-tax income cash distribution to Susan if she chooses to sell the assets (option 2) Assume the appropriate designations or elections will be made to minimize the taxes payable by Susan. (Ignore any possible implications of the Lifetime Capital Gains Deduction and the Alternative Minimum Tax). (18 marks)
