Ms. Hart, a Canadian resident, has provided you with the following balance sheet and additional information concerning her unincorporated active retail clothing business. Effective November 10, 2008, she wishes to transfer all of her business assets and liabilities to a corporation (Hart Ltd.) in which her husband owns 100% of the common shares. She wants to minimize her personal tax on the transaction and insists on receiving the following package of consideration:
(1) The maximum amount of debt (to the nearest $100); and
(2) Voting, redeemable, retractable preferred shares for the balance of the consideration with a legal stated capital equal to their fair market value.
The following financial information concerning the business as of November 10, 2008, was provided:

Additional Information:
1. The shares are capital property to Ms. Hart. Ms. Hart owns less than 1% of each public company.
2. The tax reserve for doubtful debts taken in the previous year was $1,000. The original cost of the accounts receivable before deducting the reserve was $14,000.
3. The unincorporated business has liabilities of $60,000 which are to be assumed by Hart Ltd.
REQUIRED
(A) Prepare an analysis, with explanations as necessary, of the income tax consequences of selling the assets to Hart Ltd. without electing under section 85 or section 22. Show all calculations whether or not relevant to the final answer.
(B) Recommend a more tax-effective manner in which to achieve Ms. Hart's objectives. Explain your recommendations in detail, including the income tax implication for Hart Ltd., as well as for Ms. Hart.
(C) What are the tax consequences if Ms. Hart sells her preferred shares to a third party for their fair market value?
(D) What will be the tax consequences if Hart Ltd. redeems Ms. Hart's preferred shares for their fair market value?

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air market Tax value lue Shares in public companies (note 1). Accounts receivable (note 2).. Inventory Land (held as inventory)... Prepaid property insurance Building (Class 1, cost S90,000 Land (capital property.. Goodwll S11,000 13.000 8,000 S 6,000 10,000 9,000 600 50,000 140,000 160,000 80.000 600 70,000 Nil