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Carla Armitage owns 100% of the common shares of Extra Ltd., a Canadian-controlled private corporation operating a wholesale business in eastern Canada. Extras fiscal year-end is May 31, 2022. It is now April 15, 2022, and Carla has just signed a letter of intent to sell the wholesale business to Q Ltd. The initial discussions involved the sale of specific assets of Extra, but a sale of the shares of the company may also be considered. Carla has requested your assistance in estimating the tax liability to Extra if the business assets are sold. Information relating to the sale and to the current years operating income is provided below. The balance sheet of Extra at May 31, 2022, is estimated as follows: Accounts receivable $ 126,000 Inventory, at cost 406,000 Land, at cost 36,000 Building, at book value 286,000 Equipment, at book value 176,000 Licence, at book value 46,000 $ 1,076,000 Liabilities $ 518,000 Share capital 1,000 Retained earnings 557,000 $ 1,076,000 Net income before income tax and net gains from the sale of assets for the year ended May 31, 2022, are estimated as follows: Income from wholesale operations $ 496,000 Dividend income 1,600 Net income before tax $ 497,600 The following additional information relates to the net income: The dividend income is eligible dividends received from a Canadian public corporation, the shares of which were sold during the year for proceeds equal to their original cost. Expenses deducted from revenues included the following items: Legal fees for collection of bad debts $ 2,600 Donations to registered charities 3,600 Meals and beverages to entertain customers 4,600 Non-eligible dividend paid to Carla on March 31, 2022 20,600 Replacing a broken window in the building 3,000 The 2021 income tax return indicates the following tax account balances: NERDTOH NIL Capital dividend account NIL GRIP NIL Undepreciated capital cost Class 1 $ 290,000 Class 8 140,000 Class 14 42,000 Class 14.1 0 The letter of intent regarding the sale of the business indicates that the closing date will be May 31, 2022. The letter included the following list of assets to be sold, together with each assets estimated market value. For information, the original cost of each asset is provided in the chart below. Market value Cost Accounts receivable $ 126,000 $ 126,000 Inventory 516,000 406,000 Land 46,000 36,000 Building 606,000 326,000 Equipment 111,000 206,000 Licence 51,000 56,000 Goodwill 106,000 0 $ 1,562,000 $ 1,156,000 Payment for the above assets would consist of cash plus the assumption of Extras liabilities. You have suggested to Carla that she consider selling the common shares of Extra, rather than the specific assets. You have estimated the market value of the shares to be $915,000. The shares were acquired in 2014 for a cost of $106,000. In previous years, Carla had used the capital gain deduction to exempt from tax $126,000 of gains. Her cumulative net investment loss (CNIL) at the end of 2021 is estimated to be $43,000. Required: 1. Determine the active business income, aggregate investment income, increase to the capital dividend account, and increase to the non-eligible refundable dividend tax on hand resulting from the sale of the assets. (If an item is not relevant, leave it blank.) 2. Disregard the amounts calculated in Part 1 and assume new information has come to light and that you have correctly updated your calculations to the following: The total active business income created on the asset sale is 130,000 The total aggregate investment created on the asset sale 206,000 The increase to the capital dividend account resulting from the asset sale is 206,000 The increase to the non-eligible refundable dividend tax on hand from the asset sale is 63,180 All other information is unchanged. Determine the net income for tax purposes and taxable income. (Enter reductions as negative amounts with a minus (-) sign.) 3. Disregard the amounts you calculated in Part 2 and assume that the net income for tax purposes was 860,000 and the taxable income was 854,800. The amounts listed in Part 2 resulting from the asset sale are unchanged. Determine the total active business income from all sources. (Enter reductions as negative amounts with a minus (-) sign.) 4. Disregard the active business income calculated in Part 3 and assume it was actually 665,500. Also assume that the net income for tax purposes is still 860,000 and the taxable income is still 854,800. Determine the Part I tax, Part IV tax, and dividend refund. Enter reductions as negative amounts with a minus (-) sign. If an amount is zero, enter "0". Use 0.3833 when multiplying to represent 38 1/3%. Use 0.3067 when multiplying to represent 30 2/3%. (Do not multiply by more than 4 decimal places and round your final answer to the nearest dollar.) 5. If Carla decides to sell the shares of Extra, what amount will be added to her net income for tax purposes in her 2022 taxation year

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