In $2016,$ Miranda Rustowicz commenced carrying on a small manufacturing business in a rented property as a sole proprietor. As she did not expect the business to be profitable in the first few$$ years, she initially decided not to incorporate the business. As a$$ result, she was able to use her business losses against her employment income for those first few years.

Additional Information

By $2019,$ the business began to show a large annual profit. At this$$ time, the tax cost of the business properties was $ $843$ comma $000,$ and it was estimated that their FMV was $ $1$ comma $844$ comma $400.$ Given that the business was now$$ profitable, Miranda decided to incorporate. Using the rollover provisions of ITA$85(1),$ all of the business properties were sold to a newly incorporated$$ company, Rustowicz Inc. The combined elected amounts for the business properties was $ $843$ comma $000.$ The only consideration that Miranda received was $17$ comma $400$ common shares in the new corporation with a FMV of $ $1$ comma $844$ comma $400.$ No other shares of Rustowicz Inc. have been issued.

On January$1,2023,$ Miranda receives an offer from Glenville Ltd$.$ To acquire all of the Rustowicz Inc. shares in return for $24$ comma $000$ of that$$ company's shares. The Glenville Ltd$.$ Shares have a total FMV of $ $2$ comma $544$ comma $000.$ Any capital gain on the shares of Rustowicz Inc. would not qualify for the$$ capital$-$gains deduction.

Requirement A$.$ Advise Miranda with respect to the income tax consequences that would arise for her from accepting the Glenville Ltd$.$ offer. Your answer should consider both the automatic rollover application of ITA $85\mathrm{.}1$ and any method that involves opting out of the rollover.

Start by calculating the ACB of the Rustowicz Inc. common shares Miranda received as consideration. $($For entries with a$$ $$0$ balance, make sure to enter$"0"$ in the appropriate input$$ field.$)$

Elected amount

Less: FMV of NSC

ACB of common shares

Part $2$

$$Next$,$ calculate the adjusted cost base of the Rustowicz Inc. common shares Miranda received as consideration. $($For entries with a$$ $$0$ balance, make sure to enter$"0"$ in the appropriate input$$ field.$)$

Increase in legal capital

Less excess, if any:

Elected amount

Less: FMV of NSC

Amount of excess

PUC reduction

Part $3$

$$Now$,$ calculate the$$ paid$-$up capital of the common shares Miranda received as consideration.

Increase in legal capital

Less: PUC reduction

PUC of common shares

Part $4$

Determine the incomes tax consequences for Miranda if she does not opt out of ITA $85\mathrm{.}1.$ Complete the following$$ sentences:

Miranda would be deemed to have disposed of her Rustowicz Inc. shares at an amount equal to their

$$

reduction in paid$-$up capital.

fair market value.

adjusted cost base.

The disposition will have

$$

no capital gain or capital loss.

a capital loss.

a capital gain.

Miranda would be deemed to have acquired her Glenville Ltd$.$ shares at a cost equal to the

$$

fair market value.

reduction in paid$-$up capital.

adjusted cost base.

After the$$ paid$-$up capital$$ reduction, the$$ paid$-$up capital of the Glenville Ltd$.$ shares that have been issued to Miranda would be equal to the

$$

adjusted cost base.

fair market value.

reduction in paid$-$up capital.

This ensures that the$$ paid$-$up capital of the Rustowicz Inc. shares is

$$

equal to the paid$-$up capital of the Glenville Ltd$.$ shares.

greater than the paid$-$up capital of the Glenville Ltd$.$ shares.

less than the paid$-$up capital of the Glenville Ltd$.$ shares.

Part $5$

$$Next$,$ calculate the taxable capital gain in Miranda$\text{'}$s income tax return for the year of the exchange if she opts out of ITA $85\mathrm{.}1.$

Fair market value of Glenville Ltd$.$ shares

Less: ACB of Rustowicz Inc. common shares

Capital gain

Inclusion rate

$(1-$: $2)$

Taxable capital gain

Part $6$

Is there any other method that involves opting out of the$$ rollover?

A$.$

A$$ share$-$for$-$share can be used to treat the entirety of the share exchange as a taxable event.

B$.$

An allocation of consideration can be used to treat the entirety of the share exchange as a taxable event.

C$.$

An allocation of consideration can be used to treat part of the share exchange on a rollover basis and the other part as a taxable event.

D$.$

No other method can be used to opt out of the rollover.

Part $7$

Requirement B$.$ Calculate the ACB of the Rustowicz Inc. shares to Glenville Ltd$.$

Complete the following$$ sentence:

The ACB of the Rustowicz Inc. shares to Glenville Ltd$.$ is the

$$

lesser of their FMV and the NSC$.$

lesser of their NSC and their PUC.

greater of their FMV and their PUC.

greater of their FMV and their NSC$.$

greater of their PUC and their NSC$.$

lesser of their FMV and their PUC.

Part $8$

Answer the following$$ question:

What is the ACB of the Rustowicz Inc. shares to Glenville Ltd$.?$