Reference no: EM133140184
Question - Due to his advanced age, Gordon Korngold, the only shareholder of Korngold Ltd., has decided to retire. As the Company activities are largely based on Gordon's effort, he intends to sell the assets of the company, followed by a wind-up and distribution of the resulting cash.
Korngold Ltd. is a CCPC with a December 31 taxation year end. In contemplation of this liquidation, a Balance Sheet has been prepared based on the income tax values of its assets and liabilities as at January 1, 2021. This Balance Sheet, after all closing entries, is as follows:
Korngold Ltd. Balance Sheet As at January 1, 2021
Inventories (Net Realizable Value and Tax Cost) $48,650
Eligible RDTOH Nil
Non-Eligible RDTOH 32,345
Land - ACB 942,450
Building - UCC 723,640
Total Assets $1,747,085
Liabilities $313,260
PUC 625,000
Capital Dividend Account (CDA) 326,470
Other Retained Income 482,355
Total Equities $1,747,085
Other Information:
1. The current FMV of the Land is $2,600,000.
2. The Building had a capital cost of $1,160,000. Its FMV on January 1, 2021 is $1,846,000.
3. The ACB of the common shares is equal to $625,000, their PUC.
4. On January 1, 2021, the Company has a nil GRIP balance.
5. All of the assets are disposed of on January 1, 2021 at FMV. The corporation's liabilities are also paid on this date. The after tax proceeds from the sale are distributed to shareholders on December 31, 2021.
6. The provincial income tax rate for the corporation on income that qualifies for the small business deduction is 3% and is 14$ on all other income.
7. No dividends have been paid in the previous two years.
Required -
A. Calculate the amount that will be available for distribution to Mr. Korngold after the liquidation.
B. Determine the components of the distribution to Mr. Korngold, and the amount of taxable capital gains that will be realized as a result of the winding-up of Korngold Ltd. Assume that appropriate elections or designations will be made to minimize any income tax.
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