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QUESTION 18 Mr. Vail made an offer to purchase a business for sale by Mr. Craig. Mr. Vail and Mr. Craig had never met prior to their negotiation of the terms of the sale They worked together to structure the deal in a way that minimized each person’s tax consequences The sale is an example of a Arm’s length transaction Private market transaction Public market transaction Both a and b QUESTION 19 Business J operates in a jurisdiction that levies an income tax with the following structure 7% 10 15 Income from $0 to $75,000 Income from $75,001 to $150,000 Income above $150,000 Business J has the opportunity to invest in a project that should generate $35,000 additional taxable income for the year Compute the tax cost of this additional income assuming that Business J’s taxable income is $92,000 before considering the new project $2,450 o $3,500 O $3,000 $5,250
Expert Answer
18 a) Arm’s length transaction
19) b) $3500
Total taxable income = $92,000 + $35,000(additional income) = $127,000
Therefore the marginal rate is 10%
$35,000*10% = $3,500 ( the tax cost of additional income)
20) b) 7.9%
Average tax rate ={ $75,000*7% + ($110,000 – $75,000)*10% } / $110,000 = $8,750 / $110,000 = 7.9%
