Will provide details after chat.

OBJECTIVE 1
Introduction
We are Tax Consultants a group of tax strategists working in for a public
accounting firm. Two Canadian residents, Kevin and Mamie Koch approached us our
group in during September of 2012 regarding tax advice on an acquisition.
The Kochs have were previous owner-operators who sold their sole
proprietorship business and planned to ‘take it easy’ thereafter. This sale took place 3
years ago with the window for opportunity for a CCPC tax-defe
ed business purchase
no longer available (i.e. within 2 years).
They have planned to acquire Paradise Co. (a sole proprietorship) The target
acquisition is Paradise Co., the vendor and sole shareholder operates at arm’s length
to them the Kochs. The Paradise Co. was established 15 years ago and the acquisition
dated is set for Jan 01, 2013. The business continued in operation after 15 years and a
purchase acquisition date is set for January 1st of 2013. They have consulted us
egarding:-
1. A tax minimizing business acquisition strategy without significant complexity.
2. Maintaining a $75,000 gross income from the business.
After listening in detail their views and intention, we discussed the following
strategies:-
The Kochs would like our group to consult them on (A) a tax-minimizing
usiness strategy without significant added complexity while (B) maintaining a
$75,000 gross income for the Kochs if possible.
Objective 1: Finding the Optimal Purchase Transaction
Strategy 1: Acquisition Personal Purchase of Paradise with Personal Loan
Withdrawal
In this scenario, the Kochs will seek a $450,000 personal loan from the bank on
20 years term personally and use those funds along with $350,000 from personal
savings to acquire in savings to purchase Paradise Co.
The payment of loan will be from the dividend income received from Paradise
Co. after deduction of 35% tax less the gross up of 125% and federal tax credit of 15%.
The interest and on the bank loan debt from after-tax net income dividends to Kochs
, and they will be taxed 35% on that dividend less the gross up of 125% and federal
tax credit of 15%. The Kochs will then be responsible for returning the after-tax
dividends to cover the monthly bank debt obligation.
The shareholder loan zero-interest principal repayment will flow back to the
Kochs from Paradise after-tax net income subjected to the 11% CCPC small business
ate.
Summary:
This strategy is simple benefits from its’ relative simplicity, but the marginal
personal rate on interest is 35% (less federal tax credit), which exceeds the small
usiness...