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Par   •  25 Janvier 2012  •  668 Mots (3 Pages)  •  629 Vues

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Problem 1

Freshen-up Ltd.

Your client Greg Green has come to you to discuss his plans for retirement. He started his company, Freshen-up Ltd. (FL) 20 years ago with a $10,000 contribution for 10,000 shares. The company was ahead of its time with respect to environmental clean-up and has increased in value to become a $2.8 million dollar enterprise. Greg still believes in the company and its mandate but wants any additional growth in value to accrue to his son Miles.

Greg has taken many professional development courses over the years, including a course in taxation. He thinks he knows how to structure his affairs so that he can receive the funds he needs for retirement at a minimal tax cost. As a result, Greg plans to exchange his 10,000 common shares in FL for non-voting preference shares of FL valued at $2.8 million. Meanwhile his son will subscribe to the new common shares of FL for $100.

Then Greg plans on incorporating a new company Newviews Ltd. (NL) in which both he and his wife will subscribe to common shares. He will then transfer the preference shares of FL to Newviews in exchange for $760,000 cash and preference shares of Newviews valued at $2,040,000. Greg plans to elect under section 85 at a value of $760,000 in order to use up his capital gains exemption.

Although Greg believes that his scheme is a good one he would like to have your advice. He would like you to explain any problems with his plan and provide any advice that would help him achieve his goals with the least tax cost.

Question 2

Brony Ltd. is a Canadian controlled private corporation (CCPC) that carries on a business producing and distributing bakery products. All of the 10,000 common shares issued by the corporation are held by Brian, who acquired them for $10,000 when they were issued in 1975. The amount of $10,000 was also entered into the books of the corporation as paid-up capital for the shares.

Brian who is your client has never claimed the capital gains deduction. Since he is nearing retirement age and is thinking of selling the shares of Brony in a few years, he wants to know whether he will be able to claim the capital gains deduction when the shares are sold. He has come to consult you about this.

As of today, the balance sheet of Brony is as follows:

BRONY LTD.

Balance Sheet

Assets

Cash $ 30,000

Accounts Receivable 420,000

Inventory 325,000

Investments 700,000

Capital Property 635,000

$2,110,000

Liabilities

Accounts Payable $ 50,000

Bank Loans 650,000

Shareholder’s Equity

Share Capital – 10,000 shares 10,000

Retained Earnings 1,400,000

$2,110,000

...

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