Joe Schmaltz has carried on a retail business for about 20 years. He intends to transfer the business assets and liabilities to a corporation, Schmaltz Enterprises Ltd. (SEL), in which he will own all of the voting preferred shares. His three children, all in their 20's, have already subscribed for all of the common shares in equal numbers. The balance sheet of the proprietorship and certain additional information are provided as follows:

Notes to Balance Sheet
(1) The reserve for doubtful debts represents the closing reserve for the previous fiscal period.
(2) These shares represent a 2% ownership in the common shares of Supplyco Ltd. which is a small business corporation.
(3) Fixed assets are recorded at original cost less accumulated financial accounting depreciation. Tax data follow:

No single piece of equipment was fairly valued in excess of its cost at April 30, 2008.
(4) Liabilities are to be assumed by the corporation. In addition, Joe Schmaltz will receive as consideration for the transfer of assets under section 85 the maximum in notes payable by the corporation to permit the maximum deferral of taxation on the transfer and voting retractable preferred shares.
REQUIRED
(A) Indicate which assets should not be transferred to the corporation at all.
(B) Indicate which assets should be transferred to the corporation, but cannot or should not be transferred under section 85 and explain why.
(C) Assuming that the appropriate procedure has been adopted to take advantage of the provisions of section 85 of the Act, indicate the elected amounts which should be used in order to defer any taxation upon the transfer of the business to the company and the effect of the consideration package as expressly requested by your client. He has $4,500 of net capital losses (arising in 1999) that he would like to use on the transfer.
(D) What is Joe's cost on the consideration and the PUC for tax purposes of the shares he receives for the transfer of assets?
(E) Without re-doing all of the calculations, indicate the tax consequences of having the corporation issue the maximum debt, as indicated above, but only $150,000 of voting, retractable preferred shares.
(F) What are the tax consequences, if on a subsequent assessment the CRA determines that the value of the goodwill was $120,000? What protection from this eventuality can be implemented?

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Fair market Balance sheet, value Aprl 30, April 30, 2008 $12,000 120,000 2008 $12,000 102,000 Assets Cash Accounts receivable.. Reserves for doubtful debts) Inventories. Shares of Supplyco Ltd.2 Shares of Clientco Ltd.. (10,000) 90,000 36,000 1,000 96,000 48,000 72,000 3.000 100,000 40.000 100 103,000 144,000 40.000 5.000 90.000 S636,100 Buildings51 1987 Oldsmobile) $468,000 Liabilities Bank loan. Accounts payabl. Accrued liabilities... Mortgage on land and building S30,000 31,000 6,000 84.000 $151,000 Proprietor's equity..317,000 S468,000 Original UCC cost Buildings Equipment 1987 Oldsmobile... 18,000 1.000 110,000 57,000