For many years, Janice Virtue had been a professor of Business Ethics in the Faculty of Business at a major Canadian university. In 2018, while continuing to teach one section of B
For many years, Janice Virtue had been a professor of Business Ethics in the Faculty of Business at a
major Canadian university. In 2018, while continuing to teach one section of Business Ethics,
she established Virtue Ltd. (VL) in order to market her numerous publications and online courses
involving the application of ethical principles to business situations.
While the company experienced a net operating loss of $128,000 in the fiscal period ending
December 31, 2018, VL experienced rapidly increasing sales during 2019. Because Janice
believed the improvement was indicative of the success to come, VL moved to larger premises
that were purchased for $423,000. Of this total, $100,000 related to the land, with the remaining
$323,000 allocated to the building. Because the building was to be used exclusively for non-
residential purposes, it was allocated to a separate Class 1. In selling the previous premises in
2019, VL experienced an allowable capital loss on the land of $36,000. The building was sold at
its UCC value.
The Net Income For Tax Purposes of VL for the year ending December 31, 2019, after deducting
CCA on the Class 1 building, was $16,000. VL realized no capital gains during the year.
In early 2020, a joint CRA/RCMP operation found that Janice was the mastermind and guid-
ing force behind a network of illegal aliens working throughout Canada. They were selling
stolen weapons and preparing thousands of tax returns with large fictitious charitable dona-
tions. The fee for the tax return preparation was always paid for in cash, which was not
reported to the CRA.
Various charges were laid and, while Janice remains free on bail, a court date has been set for
September.
By May 2020, Janice’s lawyer indicated that it is likely that she will be convicted on multiple
charges and will spend a significant amount of time in prison. She has also been advised by her
employer that her contract to teach Business Ethics will not be renewed in the fall.
Given these circumstances, Janice decides to sell her VL shares. She finds a corporate buyer
who is willing to acquire the shares on June 1, 2020. This buyer, Peerzon Books, is a large pub-
licly traded Canadian company. The VL assets include the copyrights to all of her publications.
While sales of these publications have fallen off precipitously in 2020, Peerzon believes its
crack marketing team will be able to put the proper spin on Janice’s life experiences and sales
will take off.
As this acquisition of control resulted in a deemed year end, VL prepared an Ipcome Statement
for the period January 1, 2020, through May 31, 2020. This short fiscal period statement showed
an additional business loss of $34,000 for this period. There were, however, no further capital
losses.
On May 31, 2020, the values of the company’s assets were as follows:
Asset Cost UCC Fair Market Value
Temporary Investments 32,000 N/A 7,000
Accounts Receivable 123,000 N/A 110,000
Land 100,000 N/A 115,000
Building 323,000 313,310 352,000
Equipment 46,000 33,120 5,000
Vehicles (Class 10) 36,000 21,420 24,000
Copyrights Nil Nil 42,000
VL will make all possible elections to minimize any net capital and non-capital loss balances.
Shortly after taking over VL, Peerzon Books decided that some of the extra space in VL’s facilities
could be used for manufacturing electronic reading devices. VL’s income (loss) from the two
separate businesses for the period June 1 through December 31, 2020, and for the 2021 taxa-
tion year was as follows:
Business June 1 to Dec. 31, 2020 2021 Year
Electronic Reading Devices 123,000 (26,000)
Janice’s Publications (53,000) 185,000
Required:
A.
Determine the amount of the non-capital loss balance that will be carried forward after the
acquisition of control by Peerzon Books, and calculate the amount of the net capital losses
that will be lost as a result of this change in ownership, if any.
B
Indicate the maximum amount of the non-capital loss carry forward that can be used during
the period June 1 through December 31, 2020, and the amount remaining at December 31,
2020.
C
Indicate the maximum amount of the non-capital loss carry forward that can be used during
2021, and the amount remaining at December 31, 2021.
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