Michael purchased 100% of the issued shares of Sentry Inc., a Canadian-controlled private corporation, which owns and operates an assisted-living retirement home in Ontario. Sentry has a December 31, fiscal year end. The transaction closed on October 1, 20X4. At that time, the values of certain assets owned by Sentry were as follows:

Michael selected December 31, 20X4 as the first fiscal year-end for Sentry after his purchase. The following is a schedule of Sentry's income and unused losses for the period January 1, 20X3 through December 31, 20X5.

Required:
1. Assuming Sentry does not make an election to recognize accrued gains or recapture under paragraph 111(4)(e) of the Income Tax Act,
a. Calculate the business loss for tax purposes for the period January 1, 20X4 through September 30, 20X4.
b. State the tax value (e.g., ACB, UCC, or CEC) for each of the assets at October 1, 20X4.
c. What conditions must be met in order for the non-capital losses incurred in the period January 1, 20X3 through December 31, 20X4 to be deductible by Sentry in 20X5 and future taxation years?
d. What is the maximum amount of non-capital losses that can be deducted for the year ended December 31, 20X5? Explain.
e. What is the maximum amount of net capital losses that can be claimed for the year ended December 31, 20X5? Explain.
2. Assume Michael expects to be able to use Sentry€™s losses by amalgamating Sentry with another corporation that he owns. Should Sentry make an election (ITA 111(4)(e)) to recognize capital gains and recapture at September 30, 20X4? Explain, including the benefit, if any, to Sentry of making such an election. Show all calculations.
3. Michael is the sole shareholder of two other corporations, M Ltd. which operates a food distribution business (annual profits $600,000) and R Ltd. which operates a retirement home (annual profits $200,000). Both corporations are located in Ontario. Which one of these two corporations should be amalgamated with Sentry in order to save income tax? Explain.

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Land Building Fumiture and fixtures Computer equipment Inventorv Marketable securities Incorporation/organization costs Cost $120,000 240.000 100,000 12,000 55.000 24,000 0.000 UCC/CEC N/A $90,000 65.000 6.000 N/A N/A 1,000 FMV $300,000 290,000 50,000 8.000 52,000 10,000 500 Business Taxable Net capit:a Income Capital gai oss (loss) January 20X3 December 31, 20X3 January 1, 20X4-September 30, 20X4 October 1, 20X4 - December 31, 20X4 January 1, 20X5 -December 31, 20X5 (S100,000) (200,000) (70,000) 40,000 S nil Nil Nil 10,000 (S22,000) Nil Nil Nil