CACC522-Week12-text

CACC522-Week12-text - CACC522Week12 Chapter12 Problem2

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CACC522-Week12 03:24 Chapter 12 Problem 2 transactions divesting of corporations 3 attributes FMV – fair market value ACB – Adjusted cost base PUC - paid up capital BBLtd. CCPC Profits 100K annually Might not qualify as SBC since they might have too much cash if it is more than 10% of  capital. effective rate 16% -> non-eligible  dividends option 1 redemption, cancellation of shares deemed dividend any payment from corporation to shareholder comes out of retained earnings o paid corporate tax but no personal tax o dividend option 2 sale to other shareholders disposition capital gain or loss Cynthia – 45% tax bracket 10% ownership of BB Ltd. Others 90% of BB Ltd. FMV – 60000 ACB – 20000 PUC – 1000 Option 1 Proceeds 60000 PUC (1000) Deemed dividend 59000 Proceeds 60000 Deemed Dividend (59000) Proceeds of Disposition 1000 ACB (20000) CL (Capital Loss) (19000)
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Taxes 59000 div x 33% rate 19470 Future tax saving CL 19000 x 45% x ½ $4275 Net funds 60k – 19470 $40k Option 2 Sale Proceeds of Dispostion 60000 ACB (20000) CG 40000 Tax 40000 x ½ x 45% 9000 Net funds at end 60k – 9k 51k Possible tax reserve if  will reduce tax due to  present value calculation. Redemption is different from a sale of stock redemption might create a deemed dividend which can cost you more tax than a sale of stock Have to calculate both deemed dividend and capital gain/loss Part 2 Buyer has to pay 60K after tax. Corp Shdr After tax 60k 60k 60k Pretax 60k / (1 - .16) 60k / (1 - .45) 60k/(1-.33)  effective rate on non- eligible dividends  personal rate for Ontario = 71,429 109091 if salary 89552 Income needed  89552/(1-.16) =106,610
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Chapter 13 tax laws to encourage active business income
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This note was uploaded on 04/14/2011 for the course ACC 522 taught by Professor A.vena during the Winter '11 term at Ryerson.

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CACC522-Week12-text - CACC522Week12 Chapter12 Problem2

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