Reference no: EM133079118

Question - Due to her advanced age, Rosa Kuhn, the only shareholder of K-gold Ltd., has decided to retire. As the Company activities are largely based on Rosa's effort, the Company has sold off all the assets and this will be followed by a wind-up (liquidation) and distribution of the resulting cash to Rosa upon redemption of her shares by the Company. K-gold Ltd. is a CCPC with a December 31 taxation year end.

All the assets were sold for total cash proceeds of $2,800,000 on January 2, 2020. This resulted in the following source of income to the company: Active Business Income $467,000 (all eligible for the small business deduction).

The Company must still pay off liabilities of $425,000 and any federal & provincial income taxes as a result of the sale of the assets.

The Company has also provided the following information as at January 1, 2020:

Non-eligible RDTOH $35,000

Paid Up Capital of common shares $325,000

Capital Dividend Account $324,290

Other Information:

1. Rosa's adjusted cost base of the common shares is equal to $200,000.

2. On January 1, 2020, the Company has a nil balance in its General Rate Income Pool (GRIP) account.

3. The provincial tax rate for the corporation on income that qualifies for the small business deduction is 4 percent. On all other income, the provincial rate is 15 percent.

4. No dividends have been paid in the previous two years.

5. The Company is not associated with any other companies and does not have TCEC greater than $10,000,000 or Adjusted Aggregate Investment Income greater than $50,000 in previous years.

Required -

A. Calculate the amount that will be available for distribution to Rosa after the liquidation.

B. Determine the components of the distribution to Rosa, and the amount and type of any income or gains (losses) that will taxable to her as a result of the winding-up of K-gold Ltd and the redemption of her shares. Assume that appropriate elections or designations will be made to minimize the taxes that will be paid by Rosa.