You are a cpa and a tax senior at roll accounting inc rai

Assignment Help Taxation
Reference no: EM13367493

You are a CPA and a tax senior at Roll Accounting Inc. (RAI), an accounting professional corporation in Canada. It is now March 31, 2014 and you have just finished meeting with Mike Dee, a partner at RAI. Mike has some tax issues that he wants you to assist him with. Mike has provided you with the information below and wants you to answer the following:

(1) Andy Tsai, a longtime client of RAI is considering doing an estate freeze. See the Exhibit for details. Mike wants you to draft a report describing and calculating the federal income tax consequences to Andy from the proposed estate freeze. You do not need to suggest any improvements to the proposed estate freeze at this time. You should give Income Tax Act (ITA) section, subsection and paragraph (where applicable) references in order to support your answer.


Additional information

  • Andy currently owns all of the shares of Grand Inc., a CCPC with 1,000 common shares issued and outstanding. Grand Inc. operates an active business in Canada and is a small business corporation with a December 31st year-end. Andy's shares of Grand Inc. are qualified small business corporation (QSBC) shares
  • Grand Inc. was incorporated in 1985 by Andy's aunt, Mary. In 1985 Mary subscribed for 1,000 common shares of Grand Inc. and paid $3,000, in aggregate, into the company to buy the shares. In 1999 Mary retired and sold all her 1,000 common shares to Andy for $220,000, in aggregate, which was their fair market value (FMV) at the time
  • Some friends of Andy's have done estate freezes themselves and suggested that Andy do something similar. Andy thinks the value of Grand Inc. will increase over the next several years and after discussions with his friends Andy wants to do the following estate freeze in the near future:

1) Grand Inc. will undergo a reorganization of capital, where Andy's 1,000 common shares will be given up in return for 500 new non-voting preferred shares. Andy does not want to use subsection 85(1) of the Act when doing this reorganization of capital;

2) Andy's adult children, who are very mature and business savvy, will subscribe for 100 new common shares of Grand Inc. Hence, the children will have voting control of Grand Inc. which Andy is fine with;

3) Andy will sell his 500 non-voting preferred shares of Grand Inc. to Tsai Family Holding Company in return for $800,000 in cash. Tsai Family Holding Company is 50% owned by Andy and 50% owned by Andy's children and it has lots of cash and liquid assets. Since Andy has never used his capital gains exemption before

Andy's friends believe he can get the $800,000 tax-free. Grand Inc.'s most recent (December 31, 2013) balance sheet shows the following information (and these figures have remained stable for the past 24 months):

                                                                              ACB (original


                                                                               cost)                  UCC               FMV

Active business assets (excluding goodwill)                $700,000         $500,000         $600,000

Cumulative eligible capital (goodwill)                         $20,000           $10,000         $300,000

Long-term portfolio investments                                $40,000             n/a              $60,000



  • Grand Inc. has $160,000 of liabilities
  • Grand Inc. is not associated with any other companies and its taxable capital has always been less than $10 million

Reference no: EM13367493


Write a Review


Taxation Questions & Answers

  Discuss the accessibility/deductibility

NML Ltd is a public gold mining company that is exploring for gold in the Ballarat and the Bendigo region. Geoff is the managing director and he seeks your advice as to the deductibility of the following expenses which were incurred prior to 30 June ..

  What are the tax implications to debra

What are the tax implications to Debra if she accepts the bank's offer and how do these events affect Jill's taxable income at the end of the year?

  Question kjj corp was formed on october 10 1997 by kimberly

question kjj corp. was formed on october 10 1997 by kimberly jen 123-45-6789 jennifer james 234-56-7890 and james kim

  What is emerald deduction for organizational expenditures

Emerald Corporation, a calendar year C corporation, was formed and began operations on July 1, 2011. The following expenses were incurred during the first tax year (July 1 through December 31, 2011) of operations.

  Income tax

Assuming Chen elect not to claim bonus  depreciation, what is the maximum current year  cost  recovery deduction on the asset purchased?

  Evaluate the capital gain under the indexation method

Calculate the capital gain under the indexation method and calculate the capital gain under the 50% discount method.

  Journal entry - credit to purchases account

A purchase discount was recorded as a credit to purchases account- the remainder was properly recorded. This error will cause

  Minimize the current years tax liability

Minimize the current years tax liability. That is, they would like to defer income when possible and take the largest deductions possible, a practice they have followed in the past.

  Discuss the role auditors played

Discuss briefly the accounting irregularities found in ENRON and HIH's corporate collapse. Also discuss, the role auditors played and how they could have helped to avoid these collapses.

  What is the firm after-tax income

ABC company had a taxable income of $508,214 from operations after all operating costs but before interest charges of $50,673, dividends received of $49,352, dividends paid of $10,000, and income taxes. What is the firm's after-tax income?

  Question independence is taken the cornerstone of the

question independence is taken the cornerstone of the accounting profession. in relation to the audit the auditor could

  Compute the meyers federal income tax

Compute the Meyers' federal income tax (including any AMT) on their joint return - Blake and Valerie Meyer (both age 30) are married with one dependent child

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd