Deck 18: Business Acquisitions and Divestituresassets Versus Shares

Question 1

Treez Ltd.owns land with a fair market value of $100,000, a building with a fair market value of $75,000, and equipment with a fair market value of $25,000.These assets are used for active business conducted in Canada.Which of the following would disqualify Treez from being a small business corporation?

A)Treez Ltd.also owns 40% of the non-eligible shares of Rock Co.(a small business corporation), which have a fair market value of $20,000.
B)Treez Ltd.also owns portfolio shares in Leaf Co., (with less than 1% ownership), which have a fair market value of $5,000.
C)Treez Ltd.also has long-term investments valued at $30,000.
D)Treez Ltd.sold the equipment and used the funds to purchase 35% of the shares of Tree Co., a small business corporation.

Answer 1

C

Question 2

A purchaser has agreed to purchase all of the shares of Rain Ltd., a CCPC.Rain Ltd.owns fifteen significant capital assets, all of which have appreciated in value.Which of the following statements is correct?

A)The purchaser will obtain a cost base of the assets equal to their fair market values.
B)Capital cost allowance will be based on fair market values of the assets for the purchaser.
C)The sale will result in business income for the vendor.
D)The purchaser will acquire the liabilities of Rain Ltd.

Answer 2

D

Question 3

Jesse is negotiating a purchase of ZED Inc.Which of the following is true if Jesse purchases the assets of the corporation rather than the shares from the company's sole shareholder, Jude?

A)Payment of the purchase price will flow directly to Jude.
B)Jesse will have no choice but to assume the liabilities of KCI.
C)ZED Inc.may be subject to business income and capital gains.
D)Jude will be eligible to use for the capital gains deduction on the sale.

Answer 3

C

Question 4

When the sale of a business involves the sale of assets rather than the sale of shares, which of the following is false?

A)The corporation will continue to exist following the sale of the assets.
B)If the proper conditions are met, the vendor may be able to use the capital gain exemption on the sale of the shares.
C)The vendor may be left with assets that might be difficult to sell.
D)The sale of the assets may result in capital gains and business income for the corporation.

Question 5

There are a number of key tax effects that must be considered during a business divestiture and acquisition, from the perspectives of both the vendor and the purchaser.
Required:
Match the following tax considerations with the most appropriate answer from the list below.Use each answer only once.
Tax consideration:
A.A change in control will restrict the use of losses._____
B.Capital gains and business income may occur in the business, reducing the after-tax proceeds._____
C.The capital gain deduction may apply._____
D.The cost base for assets is based on their market value._____
1) A key tax consideration for the sale of shares from the vendor's perspective.
2) A key tax consideration for the sale of assets from the vendor's perspective.
3) A key tax consideration for the purchase of assets from the purchaser's perspective.
4) A key tax consideration for the purchase of shares from the purchaser's perspective.

Question 6

When the sale of a business involves the sale of shares rather than the sale of assets, which of the following is false?

A)The after-tax proceeds of a share sale for an individual will not be subject to further levels of taxation.
B)If the proper conditions are met, the vendor may be able to use the capital gain exemption on the sale of the shares.
C)The share sale will result in capital property for the vendor.
D)The share sale may result in capital gains and business income for the corporation.

Question 7

Foods Co.is for sale.The corporation has never had shareholdings in other corporations, and the company will be a small business corporation at the time of sale.Which of the following is not one of the conditions necessary in the 24 months preceding the sale of shares for qualified small business corporation status to apply for Foods?

A)Foods Co.must be a CCPC.
B)Foods Co's shares must not be owned by an unrelated person.
C)More than 50% of the fair market value of the assets must be 'active business' assets.
D)100% of the fair market value of the assets must be 'active business' assets.

Question 8

A purchaser has agreed to purchase the shares of a qualified small business corporation.Which of the following is not applicable?

A)The seller may be eligible for the capital gains deduction.
B)The purchaser may try to discount the value of the shares if a future sale of the assets may result in a tax liability.
C)The sale will result in the immediate taxation of the corporation, and the after-tax proceeds will be paid to the seller.
D)The purchaser will assume the corporation's current UCC values.