After years of bad luck in the corporate world, Bad Luck Brian had enough decided that...

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After years of bad luck in the corporate world, Bad Luck Brian had enough decided that he'd take matters into his own hands by opening a sole-proprietorship named BLB Enterprises. To his surprise, his business actually experienced several years of success. On January 1, 2019, the tax values & FMV of BLB Enterprises' balance sheet items were as follows: Asset Accounts Receivable Inventories Class 8 Depreciable Assets (ACB = 72,000) Land Building (ACB = 450,000) Total Assets Liabilities Net Assets (Owner's Equity) FMV 83,000 Tax Value 87,000 134,000 53,000 122,000 385,000 562,000 781,000 1,051,000 (100,000) (100,000) 681,000 951,000 145,000 61,000 200,000 Despite only being in his late 20's, his luck ran out and Brian started experiencing many health problems. Given this, he would like to have his sister, Brianna, assume responsibility for running the business and he would like to avoid any current taxation on the transfer of the business. To facilitate this, he has his daughter establish a new corporation with an investment of $100,000 for 1,000 new common shares. The new corporation is called Bad Luck Brianna Ltd. and will have a December 31 taxation year. On January 1, 2019, Brian transfers all the assets except the accounts receivable to Brianna Ltd. at an elected value of $694,000 ($781,000-$87,000). The receivables are transferred using the ITA 22 joint election. Brianna Ltd. uses $83,000 of the funds that were paid for the 1,000 common shares to purchase the receivables from Brian at their FMV. Brianna Ltd. assumes all the liabilities of BLB and, in addition, issues new debt to Brian in the amount of $150,000. Brian also receives non-voting P/S with an FMV & LSC of $718,000. During a 2019 tax audit, the CRA reassesses the rollover & determines the FMV for the land was $265,000. Given his history, Brian does not wish to make it worse by appealing the valuation. Required: Ignore the lifetime capital gains deduction in your solution. A. Taking into consideration the reassessment, determine the tax consequences to Brian that result from his transfer of the BLB Enterprises assets to Sherry Ltd. Your answer should include amounts to be included in Brian's income as a result of the transfer, as well as the adjusted cost base and PUC of his preferred shares. B. Determine the tax consequence to Brian if Sherry Ltd. redeems his preferred shares for $500,000 immediately after the reassessment. C. After a few years of declining growth after the transfer of ownership, Brianna concludes that the business is cursed and decides to sell all her c/s for $1,500,000 to an arms' length party immediately after the reassessment. Determine the tax consequences of this sale. After years of bad luck in the corporate world, Bad Luck Brian had enough decided that he'd take matters into his own hands by opening a sole-proprietorship named BLB Enterprises. To his surprise, his business actually experienced several years of success. On January 1, 2019, the tax values & FMV of BLB Enterprises' balance sheet items were as follows: Asset Accounts Receivable Inventories Class 8 Depreciable Assets (ACB = 72,000) Land Building (ACB = 450,000) Total Assets Liabilities Net Assets (Owner's Equity) FMV 83,000 Tax Value 87,000 134,000 53,000 122,000 385,000 562,000 781,000 1,051,000 (100,000) (100,000) 681,000 951,000 145,000 61,000 200,000 Despite only being in his late 20's, his luck ran out and Brian started experiencing many health problems. Given this, he would like to have his sister, Brianna, assume responsibility for running the business and he would like to avoid any current taxation on the transfer of the business. To facilitate this, he has his daughter establish a new corporation with an investment of $100,000 for 1,000 new common shares. The new corporation is called Bad Luck Brianna Ltd. and will have a December 31 taxation year. On January 1, 2019, Brian transfers all the assets except the accounts receivable to Brianna Ltd. at an elected value of $694,000 ($781,000-$87,000). The receivables are transferred using the ITA 22 joint election. Brianna Ltd. uses $83,000 of the funds that were paid for the 1,000 common shares to purchase the receivables from Brian at their FMV. Brianna Ltd. assumes all the liabilities of BLB and, in addition, issues new debt to Brian in the amount of $150,000. Brian also receives non-voting P/S with an FMV & LSC of $718,000. During a 2019 tax audit, the CRA reassesses the rollover & determines the FMV for the land was $265,000. Given his history, Brian does not wish to make it worse by appealing the valuation. Required: Ignore the lifetime capital gains deduction in your solution. A. Taking into consideration the reassessment, determine the tax consequences to Brian that result from his transfer of the BLB Enterprises assets to Sherry Ltd. Your answer should include amounts to be included in Brian's income as a result of the transfer, as well as the adjusted cost base and PUC of his preferred shares. B. Determine the tax consequence to Brian if Sherry Ltd. redeems his preferred shares for $500,000 immediately after the reassessment. C. After a few years of declining growth after the transfer of ownership, Brianna concludes that the business is cursed and decides to sell all her c/s for $1,500,000 to an arms' length party immediately after the reassessment. Determine the tax consequences of this sale.

Answer rating: 100% (QA)

A The tax consequences to Brian resulting from the transfer of BLB Enterprises assets to Brianna Ltd can be calculated as follows 1 Accounts Receivable Since the receivables were transferred using the ... View the full answer