Session 4 (Summer) — Assignment 3
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Question 1 (6 marks; 2 marks each)
Heidi and Esther are sisters. Heidi owns 100% of common shares of Health Ltd . and Esther owns 100% of the common shares of Energy Ltd. In turn, Health Ltd. and Energy Ltd. own 91% and 9%, respectively, of common shares of Spirit Ltd.
Required
Citing references to the ITA, indicate which of these corporations are
a. Related
b. Associated
c. Connected

Solution:
Heidi Esther

100% 100%

Health Ltd Energy Ltd

91% 9% Spirit Ltd
a)As per Spar 251 (2)(i)(c)(iii) Corporation Health, Energy and Spirit are related, since Heidi and Esther are related, therefore two corporations are related persons, if one …show more content…

For the purposes of a business investment loss only an SBC which ceases to meet the conditions in the definition of an SBC will still be considered as an SBC if at any time in the 12 months preceding the disposition it met the conditions in the definition of an SBC.
Second, Allowable Business Investment Loss (ABILs)
Refer to paragraph 38(c), a taxpayer’s allowable business investment loss for a taxation year from the disposition of any property is 1/2 of the taxpayer’s business investment loss for the year from the disposition of that property. In this case, ABIL is 1/2 of $120,000 or $60,000.
Regarding the special treatment of ABILs, normally allowable capital losses can only be claimed against taxable capital gains. However, ABILs have such restriction and, hence, are deducted along with other loses from non-capital sources (e.g., losses from business and property). Deducting ABILs, effectively, against all sources of income, rather than only against net taxable capital gains may result in a more rapid deduction of ABILs, which is the intent of the ABIL investment incentive. In computing net income of Justina, ABILs of $60,000 could be deducted from her employment income of $75,000.
Third, restriction on benefit from capital gains deduction
A portion of a BIL, equal to an amount of capital gains that has previously benefited from a capital gains deduction,