Tim Rooks runs a successful computer hardware business as a sole proprietor. Tim is considering incorporating...

 

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Tim Rooks runs a successful computer hardware business as a sole proprietor. Tim is considering incorporating his business on February 17, 2023 and utilizing subsection 85(1) of the Act to minimize any income on the transfer. Tim would want to receive the maximum amount of debt that he possibly can, and will receive the balance in the form of preferred shares as consideration for the assets transferred. The assets of the computer hardware business are as follows: Cash Accounts receivable Inventory FMV 17,000 3,000 15,000 Cost 17,000 4,000 15,000 UCC n/a n/a n/a Land Building Equipment Goodwill 275,000 180,000 21,000 20,000 Required: 125,000 160,000 26,000 0 n/a 120,000 18,000 0 Tim has come to you for advice on the potential incorporation of his business. He is interested in knowing the following: 1. Which assets should Tim not transfer under subsection 85(1) of the Act? Why? If a particular asset(s) should be transferred under another section of the Act, please explain the rationale for relying on that other section. 2. What is the maximum amount of debt that he can receive on the transfer of the assets while minimizing income on the transfer? 3. What will be the ACB/capital cost and UCC (if applicable) of the assets to the corporation following the transfer? Tim Rooks runs a successful computer hardware business as a sole proprietor. Tim is considering incorporating his business on February 17, 2023 and utilizing subsection 85(1) of the Act to minimize any income on the transfer. Tim would want to receive the maximum amount of debt that he possibly can, and will receive the balance in the form of preferred shares as consideration for the assets transferred. The assets of the computer hardware business are as follows: Cash Accounts receivable Inventory FMV 17,000 3,000 15,000 Cost 17,000 4,000 15,000 UCC n/a n/a n/a Land Building Equipment Goodwill 275,000 180,000 21,000 20,000 Required: 125,000 160,000 26,000 0 n/a 120,000 18,000 0 Tim has come to you for advice on the potential incorporation of his business. He is interested in knowing the following: 1. Which assets should Tim not transfer under subsection 85(1) of the Act? Why? If a particular asset(s) should be transferred under another section of the Act, please explain the rationale for relying on that other section. 2. What is the maximum amount of debt that he can receive on the transfer of the assets while minimizing income on the transfer? 3. What will be the ACB/capital cost and UCC (if applicable) of the assets to the corporation following the transfer?

Answer rating: 100% (QA)

1 Which assets should Tim not transfer under subsection 851 of the Act Why For assets with accrued g... View the full answer