Nifty Cleaners Inc., a CCPC that uses a December 31 taxation year, began carrying on the business of providing cleaning services to residential properties. All of the shares were owned by Samuel Spade and, in addition, he was actively involved in managing the business. Samuel Spade, whose previous occupation was as a lawyer at a major Toronto law firm, showed little aptitude for running a business. In 2019, the business had a loss of $123,000 and a further business loss of $87,000 in 2020. When the business began, Nifty Cleaners Inc. had purchased land on which the intention was to expand the business with a second location once the first location became successful. As success did not appear to be on the horizon, Nifty Cleaners Inc. sold the land in 2020 realizing a capital loss of $192,000 which became a 2020 net capital loss of $96,000. In early 2021, Samuel Spade decided to sell the company. Consolidated Enterprises, a large public company agreed to buy all of his shares, and, on May 1, 2021, the shares were sold resulting in an acquisition of control (AOC). As a consequence of the AOC, there was a deemed year-end on April 30, 2021. Nifty Cleaners Inc. prepared an income statement for the short taxation year of January 1, 2021 to April 30, 2021. In that short taxation year, there was a business loss of $46,000, but no further capital losses. On April 30, 2021, the company owned the following capital property: Property Cost & ACB UCC FMV Temporary Investments $45,000 N/A $12,000 Accounts Receivable 90,000 N/A 76,000 Land 180,000 N/A 262,000 Building 325,000 $300,000 380,000 Equipment 93,000 60,000 45,000 Vehicles (Class 10) 145,000 110,000 132,000 Required: Assuming Nifty Cleaners Inc. makes all possible elections to minimize its net capital and non-capital loss balances for its short taxation year of January 1, 2021, to April 30, 2021, calculate its Net Income for Tax Purposes and its Taxable Income. In addition, determine the amount of the non-capital losses that will be able to be carried forward after the AOC by Consolidated Enterprises, and the amount of the net capital loss carryforward that will be lost as a result of the change of control.
Nifty Cleaners Inc., a CCPC that uses a December 31
Samuel Spade, whose previous occupation was as a lawyer at a major Toronto law firm, showed little aptitude for running a business. In 2019, the business had a loss of $123,000 and a further business loss of $87,000 in 2020.
When the business began, Nifty Cleaners Inc. had purchased land on which the intention was to expand the business with a second location once the first location became successful. As success did not appear to be on the horizon, Nifty Cleaners Inc. sold the land in 2020 realizing a capital loss of $192,000 which became a 2020 net capital loss of $96,000.
In early 2021, Samuel Spade decided to sell the company. Consolidated Enterprises, a large public company agreed to buy all of his shares, and, on May 1, 2021, the shares were sold resulting in an acquisition of control (AOC).
As a consequence of the AOC, there was a deemed year-end on April 30, 2021. Nifty Cleaners Inc. prepared an income statement for the short taxation year of January 1, 2021 to April 30, 2021. In that short taxation year, there was a business loss of $46,000, but no further capital losses.
On April 30, 2021, the company owned the following capital property:
Property Cost & ACB UCC FMV
Temporary Investments $45,000 N/A $12,000
Accounts Receivable 90,000 N/A 76,000
Land 180,000 N/A 262,000
Building 325,000 $300,000 380,000
Equipment 93,000 60,000 45,000
Vehicles (Class 10) 145,000 110,000 132,000
Required: Assuming Nifty Cleaners Inc. makes all possible elections to minimize its net capital and non-capital loss balances for its short taxation year of January 1, 2021, to April 30, 2021, calculate its Net Income for Tax Purposes and its Taxable Income. In addition, determine the amount of the non-capital losses that will be able to be carried forward after the AOC by Consolidated Enterprises, and the amount of the net capital loss carryforward that will be lost as a result of the change of control.
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