Canadian Corporate Taxation Student`s

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CanadianCorporate Taxation

Parta

  1. Prepaid insurance should not be transferred to the corporation. This is because the insurance policies do not cover the newly formed company. Another asset that should not be transferred is the cash because it is a liquid asset.

  2. The land inventory should be moved to the corporation. However, paragraph 85 (1.1) (f) provides that property is not eligible for transfer through rollover treatment. Land acquired on a mortgage or used to secure a mortgage does not qualify for transfer. If Mr. Smith wants to transfer the lease, he can do so by assuming the mortgage of $35,000 and ensure that the elected amount cannot exceed the fair market value of the land which is equal to $100,000 (paragraph, 85(1)(c)).

  3. Marketable securities, furniture, and equipment, land and buildings can be transferred as provided under elections in subsections 85(1) that provides that the assets should be moved to their respective fair market value.

Partb:ACB and PUC computation

Land

ACB= FMV – NBV

=100,000 – 60,000 =40,000

Buildings

ACB= FMV – NBV

=75,000 – 30,000 =25,000

TotalACB = 65,000

PUC

Commonshares1,000 /100 = 10

Partc

Taxfilling Subsection 84.1(1) provides that ACB and PUC adjustmentshave an implication on the transfer of assets. Tax filings for thevalue gained on transfer will be imposed as follows ACB value gain =(40,000 + 25,000) * corporate tax rate

Partd) Corporates and individuals are free to utilize tax incentivesavailable on tax planning. Tax planning is a legal measure ofreducing tax obligation, unlike tax evasion which is illegal. Jill’sadvice to Mr. Smith is a good one since it will help in tax planningby distributing the income.

Parte:FMV of the common stock will be 1,000 /100 = $10

AndACB = $100 (preferred shares)

PCB= 1,000 * 100 = 100,000

Canadian Corporate Taxation Student`s

  • Uncategorized

CanadianCorporate Taxation

Parta

  1. Prepaid insurance should not be transferred to the corporation. This is because the insurance policies do not cover the newly formed company. Another asset that should not be transferred is the cash because it is a liquid asset.

  2. The land inventory should be moved to the corporation. However, paragraph 85 (1.1) (f) provides that property is not eligible for transfer through rollover treatment. Land acquired on a mortgage or used to secure a mortgage does not qualify for transfer. If Mr. Smith wants to transfer the lease, he can do so by assuming the mortgage of $35,000 and ensure that the elected amount cannot exceed the fair market value of the land which is equal to $100,000 (paragraph, 85(1)(c)).

  3. Marketable securities, furniture, and equipment, land and buildings can be transferred as provided under elections in subsections 85(1) that provides that the assets should be moved to their respective fair market value.

Partb:ACB and PUC computation

Land

ACB= FMV – NBV

=100,000 – 60,000 =40,000

Buildings

ACB= FMV – NBV

=75,000 – 30,000 =25,000

TotalACB = 65,000

PUC

Commonshares1,000 /100 = 10

Partc

Taxfilling Subsection 84.1(1) provides that ACB and PUC adjustmentshave an implication on the transfer of assets. Tax filings for thevalue gained on transfer will be imposed as follows ACB value gain =(40,000 + 25,000) * corporate tax rate

Partd) Corporates and individuals are free to utilize tax incentivesavailable on tax planning. Tax planning is a legal measure ofreducing tax obligation, unlike tax evasion which is illegal. Jill’sadvice to Mr. Smith is a good one since it will help in tax planningby distributing the income.

Parte:FMV of the common stock will be 1,000 /100 = $10

AndACB = $100 (preferred shares)

PCB= 1,000 * 100 = 100,000

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