Reference no: EM132263229

Mary Russell has worked very hard over the years and built up her business from scratch. She graduated from University in 1985 with a degree in Detection and Investigation, and immediately started a detective agency, as well as an outlet store to sell equipment used by qualified investigators such as: deerstalker hats, magnifying glasses and various weapons and disguises. Originally, the business operated as a proprietorship, but Mary incorporated the business in 2002 as Russell Detection Incorporated (RDI), with a December 31 year-end. This business has grown over time, and, at December 31, 2018, she owns the main agency, as well as 3 stores in Ontario. She is at a point where she is considering selling the business and spending the rest of her life either at her vacation property in Tahiti, or travelling.

Required:

A. Determine how much cash (after tax) that Mary will receive on the sale of the assets of Russell Detection Incorporated, assuming the company is wound up immediately after the sale. For this calculation, do not declare a bonus to reduce active business income to $500,000.

B. If active business income is over $500,000, Mary wants you to calculate any tax savings that might occur if she declares a bonus to reduce active business income to $500,000.

C. Determine how much cash (after tax) Mary will retain on the sale of the shares of Russell Detection Incorporated to Mr. Holmes, assuming that she uses her lifetime capital gains deduction to reduce the tax cost of the transaction. Mary does not understand why Mr. Holmes thinks the price he should pay for the shares would be less than Dr. Watsons $8 million offer for the assets of the corporation. She would like your report to explain this. Ignore Alternative Minimum Taxes for the purposes of this calculation.

D. Make a recommendation to Mary regarding which of the two alternatives you suggest she should take.

E. Prove the calculation of the personal marginal tax rates (47.4%, 39.34% and 53.53%) given above. HINT: You will have to understand how taxes are calculated in Ontario in order to do this calculation.

Attachment:- Assignment.rar