Exam 19: Business Acquisitions and Divestiturestax-Deferred Sales

Pie Co.is transferring a depreciable asset to Berry Co.The asset has a fair market value of $200,000.The original cost of the asset was $175,000 and the undepreciated capital cost is $160,000.The two corporations wish to structure the transfer in a manner that will defer all taxes at this time.Pie Co.has no unused losses.Which of the following statements is incorrect?

Brynn Costello owns all of the common shares of Fresh Horizons Inc., a Canadian-controlled private corporation.The shares have a fair market value of $150,000, an ACB of $30,000, and a PUC of $5,000.Brynn would like to retire soon, and Brynn's only child Emory has expressed interest in taking over the business.Emory does not have a lot of disposable income at this time, and as such, a Section 86 reorganization of share capital has been recommended to Brynn.Brynn's common shares will be converted to preferred shares, redeemable for $150,000.Emory will then purchase a new class of common shares at a nominal value. Required: Discuss the immediate tax consequences of the reorganization of share capital for Brynn, indicating the ACB and the PUC of the new preferred shares.

Hayden owns 100% of the shares of ABC Co.Hayden's spouse owns 100% of the shares of XYZ Co.The shares of ABC Co.are valued at $50,000 with an ACB and PUC of $1000.The couple is planning for XYZ Co.to pay Hayden $50,000 in cash for the shares in ABC Co.Which of the following will result from this sale?

Which of the following is not a common feature of closely held corporations?

Tobi Schmidt and Nik Rowe are unrelated acquaintances.Tobi owns 100% of the shares of Sun Co., and Nik owns 100% of the shares of Moon Co.Nik would like to sell all of the shares of Moon Co.to Sun Co.The shares have a cost base of $50,000 and a market value of $250,000.Nik and Tobi are meeting with an advisor to structure the sale in a manner that will defer any taxes at this time.Nik would like to take as large a note receivable as possible in the sale.Which of the following statements is correct pertaining to the sale of Moon Co.to Sun Co.?

Kit and Skye Berzina would like to transfer their family business to their child, Winter.Winter does not have the required funds to purchase the company at this time.Which of the following might Kit and Skye consider in order to make the transfer possible without any immediate tax consequences?

Shareholder A owns 100% of the shares of Sun Co., and shareholder B owns 100% of the shares of Moon Co.Sun Co.is buying an asset from Moon Co.with a fair market value of $150,000.The tax cost of the asset is $80,000.Neither corporation has loss-carryovers.The arm's-length companies have elected to structure the transfer of the asset in a manner which will defer any taxes at this time.Moon Co.would like to take the maximum note receivable on the transfer.Which of the following is correct?

Which of the following statements most accurately describes an aspect of a tax-deferred sale of a business to a group of employees, through share reorganization?

The following are characteristics of various tax planning tools, (each dependent on specific conditions being met). 1.A corporation purchases the shares of another corporation in exchange for shares issued by the purchaser, and the vendors may report the sale at their tax costs.This is a useful method for public corporations with many shareholders. 2.Shares of two or more corporations are exchanged for shares of a new entity, and all of the assets of the corporations are transferred to the new entity. 3.In a tax-deferred sale of a business, a shareholder's common shares are converted to fixed-value preferred shares, and new common shares are then issued to the purchaser, often at a nominal value. 4.Assets are sold from a vendor corporation to a buyer corporation at an elected value ranging from the tax cost (i.e.UCC or ACB) to FMV, in exchange for shares and a non-share payment not exceeding the elected value. Required: Match each of the four scenarios with the appropriate tax-planning tool from the list below.Use each answer only once. Tax-planning tools: Section 85 rollover Section 85.1 share-for-share exchange Section 86 share reorganization Section 87 amalgamation