ubpump Limited is an active business corporation owned $100\%$ by George Simpson, who has been attempting to sell the company for several years and have recently received an offer from a serious buyer. As of December $31,2021,$ the company$$s financial position was as follows:

Assets

Accounts receivable $ $2,000,000$

Inventory $($at cost$)700,000$

Land $1,000,000$

Building $($at cost$)$ $ $1,500,000$

Accumulated capital cost allowance $(600,000)900,000$

Equipment $($at undepreciated capital cost$)400,000$

Goodwill $($at cost$)$ $ $300,000$

Accumulated capital cost allowance $(120,000)180,000$

$ $5,180,000$

Liabilities and Shareholders$$ Equity

Current liabilities $ $2,380,000$

Shareholders$$ equity:

Common shares $ $10,000$

Retained earnings $2,790,0002,800,000$

$ $5,180,000$

Additional information

Relevant asset values are as follows:

Fair market value UCC

Accounts Receivable $1,800,000$ N$/$A

Inventory $750,000$ N$/$A

Land $1,200,000$ N$/$A

Building $1,700,000900,000$

Equipment $350,000400,000$

Goodwill $500,000180,000$

On December $31,2021,$ the company had a balance of $$10,000$ in its capital dividend account. The balances in the NERDTOH, ERDTOH and GRIP accounts were $$0.$

Simpson acquired his shares of Subpump $10$ years ago for $$500,000.$

Simpson$$s shares of Subpump are not qualifying small business corporation shares. Simpson has never used his capital gains exemption.

The purchaser has stated two alternatives in his purchase offer:

A purchase of all assets at fair market value and an assumption of all liabilities. The balance will be paid in cash immediately.

A purchase of the shares for $$3,100,000$ in cash. A condition of sale is that no capital dividend shall be paid prior to the sale.

Under the terms of the asset sale, a section $22$ election will not be made.

Simpson is in a $50\%$ marginal tax bracket. The combined $($federal and provincial$)$ marginal tax rate is $35\%$ on eligible dividends and $43\%$ on non$-$eligible dividends received $($net of the dividend tax credit$)$ and $50\%$ on other income. Subpump$$s tax rate is $27\%$ on business income not subject to the small$-$business deduction and $13\%$ on earnings subject to the small$-$business deduction. Investment income is subject to a $502/3\%$ tax rate, including a $1023\%$ refundable tax.

Required:

$1.$ Determine the after$-$tax proceeds that Simpson will retain after the share sale. Enter numbers as positive amounts unless otherwise noted.

$3,100,000$

Proceeds

less: ACB

Capital gain

Taxable capital gain, net of any applicable capital gains deduction

less: Personal

$2.$ You will now calculate the corporate tax implications of selling the assets. Start by completing the chart below. If a column is not impacted by the sale of a particular asset, enter $0$ in that cell. Enter negative amounts with a minus sign $().$

When computing NERDTOH, use $0\mathrm{.}3067$ when multiplying to represent $30(2)/(3)\%$ and do not use more than $4$ decimal places when multiplying.

Asset description

Proceeds

Active Business

Income

Aggregate

Investment

Income

Capital Dividend

Account $($CDA$)$

Non$-$eligible

Ref

$3.$ Simpson informs you that there has been some changes to the tax values of the various assets. You update your previous calculations.

The revised total active business income is $806,400$

The revised total aggregate investment income is $180,000$

The balance in the capital dividend account is now $190,000$

The balance in the non$-$eligible refundable dividend tax on hand is now $55,206$

The next step is to determine the amount of proceeds that will be available inside the company to redeem the shares.

In the drop down$-$menu selections, select the appropriate description. Items may be used more than once or not at all.

Next to the description, enter the appropriate number. Enter negative amounts with a minus sign $().$ If the amount is zero, enter $0.$ Round each entry to the nearest dollar.

Total proceeds from asset sale

$6,500,000$

Cash available to redeem shares

$6,500,000$

$4.$ Ignore the amount calculated in Required $3$ for the cash available to redeem the shares and assume that the amount was actually $4,000,000$

Determine the deemed dividend that would result if the shares of Subpump are redeemed.

In the drop down$-$menu selections, select the appropriate description. Items may be used more than once or not at all.

Next to the description, enter the appropriate number. Enter negative amounts with a minus sign $().$ If the amount is zero, enter $0.$ Round each entry to the nearest dollar.

Cash available to redeem shares

$4,000,000$

Deemed dividend

$4,000,000$

Taxable capital gain $($or allowable capital loss$)$ on redemption of shares

$5.$ Ignore the amount calculated in Required $4$ for the deemed dividend and assume the deemed dividend was actually $3,970,000$

The amounts from Required $3$ for active business income, aggregate investment income, CDA and NERDTOH are unchanged.

What would be the optimal mix of dividends to