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Lecture 7

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Administrative Studies
ADMS 4562
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45627 14562 Lecture 7Subsection 851 ElectionUse in the Incorporation of a BusinessLast updated November 28 2013 Readings FIT Ch 16 ITA 22 85Recommend Review Questions 1 to 12 Exercises 2 to 7 all Multiple Choice questions1 Basics11 Purpose and Use of Subsection 85112 Conditions and deadline for election 13 Elected amountlimits 14 Cost of consideration and other rules 15 Paidup capital and legal characteristics of shares received 2 Planning Pitfalls and Special Rules21 Comprehensive Example on Incorporation of a Business22 Accounts receivable s 22 joint election 23 Depreciable property and nonarms length transfers S855 original capital cost flows throughIf the EAoriginal capital cost s137 Exemption from 12 net amount rule for CCA Old CCA classes flow through Reg 110214 24 Rules denying losses on transfers between affiliated persons Terminal Losses on Depreciable PropertyThe loss stays s 13212Capital Losses on NonDepreciable Propertya Individual transferors Superficial Loss RulesThe loss moves s 402g 531f b Corporate transferorsThe loss stays s 4033 4034 25 Incorporation of assets to use the 750k QSBC CG exemption with no 24 month holding test s 542 s 110614f 26 When FMV in FMV out s 851e2 2 7 When FMV inFMV outs 151 Benefit 3MinicasesCase 1 s 8511 eligible property Case 2s 851fgh 8521 PUC vs ACB Case 3s 851b 851 c151 elected amountshareholder benefits Case 4 s 13212 402g Rules denying losses Case 5 s 851e2 744 Benefittinggiftingcorporate attribution 4 Summary Golden Rules Test Yourself5 GSTHST Rules re transfer of business assetsCopyrightJoanne MageeJason Fleming45627 21BASICS of Section 8511PURPOSE AND USE OF S 851Subsection 851 is an election this means it is optionalyou elect choose a transfer price for the transfer of assets to a corporation Usually the lawyer prepares the agreement of purchase and sale and the accountant prepares the s 851 election form Major uses 1 to incorporate a business or investments most of the problems deal with incorporation of a business 2 to transfer assets from one company to another 3 to set up a holding company to freeze an estate or defer tax on dividendss 851 permits a taxfree rollover if 1 the transferor takes back shares and 2 tax cost of asset transferred inelected amountcost incost out3 FMV of the assets transferred inFMV of consideration taken out FMV inFMV out 4 nonshare consideration bootelected amount12CONDITIONS AND DEADLINE FOR ELECTION s 851The transferee corporation must be a taxable Canadian corporation Defined in subsection 891 of the ActThe consideration received by the transferor must include shares of the transferee corporationThe property transferred must be eligible property under s 8511 excludes land inventory cash prepaid expenses Transferor ie vendor and transferee corporation ie purchaser must jointly elect Due date for the election formtax return filing deadline of the party that has to file on the earliest date s 856 ExampleOn June 15 2013 an individual transfers property to a corporation with a June 30th year end When is the s 851 election dueAnswer December 31 2013CopyrightJoanne MageeJason Fleming
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