Question 4 (12 marks) Kitchener Pant Sales Ltd. (KPSL), a retailer of men's ready-to-wear pants, commenced...

 

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Question 4 (12 marks) Kitchener Pant Sales Ltd. (KPSL), a retailer of men's ready-to-wear pants, commenced operations in 2017 with a December 31 year-end. The retail market is highly competitive. Due to KPSL's lack of funds for adequate advertising and lack of good supply contracts, the corporation incurred losses in its first two years of operations as follows: December 31, 2018 December 31, 2019 non-capital losses $200,000 250,000 net capital losses Nil $10,000 On October 1, 2020, 55% of the common shares of KPSL were purchased by Frugal's Ltd. (FL). FL has been very successful for a number of years in the business of wholesaling and retailing men's and women's jeans. FL intends to inject additional capital and retrain the management of KPSL. FL is confident that with its expertise and track record it will be able to turn KPSL's business around and make it profitable within two years. Marketable securities Inventory Land Building Store fixtures and equipment A financial statement was prepared for KPSL for the nine months ended September 30, 2020. From this statement, it was determined that KPSL had incurred a business operating loss for tax purposes of $54,000 for the period. The financial statement and tax records also revealed the following values of the assets owned by KPSL on September 30, 2020: Cost UCC $11,000 N/A 50,000 N/A 550,000 N/A FMV $5,000 45,000 750,000 95,000 $75,000 115,000 35,000 35,000 27,000 REQUIRED: Show all calculations necessary to support your conclusions. a) Determine the tax implications for KPSL loss carry forward amounts for the year ended September 30, 2020. b) Determine business loss of KPSL for the deemed year end. c) Determine a capital loss that it required to recognize for its taxation year ended on September 30, 2020. Use ITA references when determining tax consequences. Question 4 (12 marks) Kitchener Pant Sales Ltd. (KPSL), a retailer of men's ready-to-wear pants, commenced operations in 2017 with a December 31 year-end. The retail market is highly competitive. Due to KPSL's lack of funds for adequate advertising and lack of good supply contracts, the corporation incurred losses in its first two years of operations as follows: December 31, 2018 December 31, 2019 non-capital losses $200,000 250,000 net capital losses Nil $10,000 On October 1, 2020, 55% of the common shares of KPSL were purchased by Frugal's Ltd. (FL). FL has been very successful for a number of years in the business of wholesaling and retailing men's and women's jeans. FL intends to inject additional capital and retrain the management of KPSL. FL is confident that with its expertise and track record it will be able to turn KPSL's business around and make it profitable within two years. Marketable securities Inventory Land Building Store fixtures and equipment A financial statement was prepared for KPSL for the nine months ended September 30, 2020. From this statement, it was determined that KPSL had incurred a business operating loss for tax purposes of $54,000 for the period. The financial statement and tax records also revealed the following values of the assets owned by KPSL on September 30, 2020: Cost UCC $11,000 N/A 50,000 N/A 550,000 N/A FMV $5,000 45,000 750,000 95,000 $75,000 115,000 35,000 35,000 27,000 REQUIRED: Show all calculations necessary to support your conclusions. a) Determine the tax implications for KPSL loss carry forward amounts for the year ended September 30, 2020. b) Determine business loss of KPSL for the deemed year end. c) Determine a capital loss that it required to recognize for its taxation year ended on September 30, 2020. Use ITA references when determining tax consequences.

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