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Calculation of 2010 Federal Income Tax Liability
Calculation of 2010 Federal Income Tax Liability
From: CA
Per Appendix 1, Michaels income tax liablility is $744 whereas Tammy is due for a refund of $200
Per Appendix 3, the requirement of funds to meet retirement needs stands at $324,000 whereas the
retirement portfolio generates $87,000. There is a shortfall of $237,000. Hence, Schacters remaning
assets are unable to provide sufficient income to retire comfortably.
Assuming it is being sold at the valuation amount of $3,093,000 - Taxes payable @ 25% will be
($3,093,000 less ACB $100,000 less LCGE $750,000) = $560,750. After tax proceeds will be ($3,093,000
less $560,750)= $2,532,250.
This option fails to honor Michaels wish to retain control. Moreover, Samantha would not have the cash
to purchase the shares and is averse to debt. She plans to use her inheritance money of $1M to
purchase a home and set up a trust.
An agreement can be worked out whereby Michael exchanges his common share for redeemable
preference shares for the amount of $3,093,000. The redeemable preference share could be structured
with the following rights attached to it:-
1) Michael retains control of SCL by having the majority voting rights.
2) Samantha subscirbes to the equity shares for a nominal amount (say $100)
3) Preference share would be redeemable and retractable for $3,093,000
4) Dividend rate should be set at 8% to yield an income of $247,000 thereby satisfying his post
retirement shortfall.
This option would suit Michael as it gives him control and makes up for the post retirement shortfall.