Crib Sheet Final ch.15-19

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Financial Accounting
Prof.Frank Giordano+ Vivian Chen

Ch. 15 Corp. Dist, Wind-ups, Sales Cost of shares: EA Boot PUC based on capital contributed to corp Eligible Property: - Averaged among all shareholders of same class - cap property (dep and non-dep) other than real prop owned by non-res - Withdrawn free of deemed dividend - Cdn or foreign resource property - Amt returned to SH excess of PUC result in deemed dividend - Eligible capital property - If redemption > ACB, cap gain result ACB amt paid for shares - Inventory Elected Amount transfer property at tax cost (ACBUCC) - Unique to shareholder - Calculated on disposition of shares - Trigger income by elect bw tax cost and FMV Capital Dividend Account untaxed portion of half of taxable cap. gains BOOT non-share consideration - Take boot up to tax cost For ECE, addition to cap div acct occurs at ye, not at time of transaction Joint election - CANNOT exceed elected amount Applies to private corps - Take maximum amount tax-free Effect: Untaxed portion of net cap gains + cap divs rcvd from other corps + untaxed portion - Half-yr rule does not apply of net gain on CEC acct + net life insurance proceeds at death - capital divs paid - Assets same CCA class Treatment of Taxable Dividends - Elected transfer price allocated to property rcvd in order: boot, PS, CS - Gross up eligible dividend: 44% GRIP ACB of shares taken back = Elected transfer price BOOT = ACB of new shares - non-eligible dividend: 25% LRIP Cost of consideration rcvd from corp: (1)Boot (2) PS (3) CS Pay Dividends: cash, stock, kind Proceeds ACB new shares = CG, TCG Stock Dividends taxed same as cash Tax Implications - Amt of dividend equal to increase in corps PUC PUC of new shares: - Same amount consider the SHs ACB Legal stated capital total PUC reduction = Tax PUC Div in Kind corp paid and SH rcve div equal to FMC of dist assets PUC reduction: - any dist made by corp in excess of PUC and not elected as capital dividend deemed taxable div Increase in LSC minus excess (elected amts less boot) = total PUC reduction (s.84) *Allocation of PUC reduction among diff classes Deemed Dividend Calculations PUC: Redemption amt less PUC = Deemed Dividend - if more than one class of shares, PUC allocated based on relative increase in LSC of one class P of D less deemed div = adj proceeds less ACB = capital gain(loss) out of total LSC of all classes Corporate Wind-ups - PUC is original cost of transferred asset not recovered through boot - Assets liquidated, liabs paid off, cash distributed to shareholders - tax cost recovered through boot, PUC = NIL - OR assets & liabs distributed directly to shareholders Other rules to remember: - taxpayer can realize terminal loss but no benefit using S.85 so just sell @FMV & take cash or - Deemed dividends on wind-up and cap gainslosseson disposition of assets debt Steps Required on Wind-up - if transfer prop under s.85 to affiliated corp, terminal loss denied 1. Dispose assets at FMV - loss kept in class and continue to take CCA until asset sold to third party to trigger 2. Calculate taxable income from disposition (ABI vs AII) Affiliated bw corp and indiv transferor if controlled by indiv or by spouse 3. Determine funds avail after pmt of tax & liabs - cap loss denied when affiliated 4. Distribution of funds Transferor indiv -> denied loss added to ACB of prop held by transferee 5. Determine shareholder tax liability Corp -> denied loss retained by transferor, recog when asset sold to non-affiliated Chart: BS given, FMV vs Cost person Columns: Open bal, cash, mkt sec, inv, land, bdlg, goodwill, (bonus), (liabs), (inc tax), RDTOH, Things not transferred under s.85 Fds avail for Distn Prepaids: non-cap property, not eligible Rows: ActDeemed Proceeds, Inc Generated (ABI, AII), CDA, RDTOH Shares of another corp: take QSBC deduction RDTOH: 26.67%*total AII Land held as inventory: not eligible Income Tax: (total ABI*20%) + ( total AII*46.67%) Items with terminalcapital loss: no benefit Goodwill: open balance affects
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