Planit:Canadian Sale of a Business Exercise Answer Key

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This case study is specific to financial planning in Canada, so has fixed values rather than indices by country. For a similar case study applicable to other countries, please see Planit:UK Sale of a Business Exercise Answer Key, Planit:Malaysian Sale of a Business Exercise Answer Key, Planit:Singapore Sale of a Business Exercise Answer Key or Planit:Entering Other Revenues Exercise.

Question Three:

45-year old Kathy Black owns a small Spa with an ACB of $100,000 that she plans to sell when she retires at age 60. The business is currently worth $460,000. She expects the business will grow at a rate of 5.0% every year. What would you put into the following data fields on the detailed Pensions screen?

  • To Year:____
  • Percent Taxable:____%
  •  % Amount on Death:____%
  • Model As:____

Note: For Canada, there is a remaining capital gains exemption of $50,000.

Answer:

For the Percent Taxable of a business, you are required to use an excel spreadsheet:Asset Disposition Analysis.

  1. Entering an appropriate Description such as Business
  2. Set the Start Year to the current year
  3. The Current Value of the business was said to be $460,000
  4. In the Growth Assumption Prior to Disposition field, use the index rate of 5.0% Kathy identified.
  5. In the Growth Assumption During Disposition field, use 0% since the business will be sold all at once and will not have time to increase in value.
  6. The Disposition Year is Kathy’s retirement year, so 15 years from now.
  7. The Payout Period can be left at one.
  8. In the Exemption Remaining field, you should enter the $50,000 that Kathy indicated was still remaining on her small business.
  9. The Capital Gains Inclusion Rate and Marginal Tax Rate should be left at the default.
  10. The ACB was identified to be $100,000 and can be input into that last field.
  11. In the Results tab, scroll down to Kathy’s target retirement year on the left, and identify the corresponding Percent Taxable.

This value will change over time depending on annual values set by the government, but should be around 40%

  • To Year: 15 years from the current year (year of Kathy’s retirement)
  • Percent Taxable: 40%
  • Amount on Death: 0%
  • Model As: Defer with Retirement (the entire goal would be pushed back until she retires, not just the start year).
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