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Carol notices that the financial statement does not provide an estimate of the company's tax liability and asks her

accountant to provide this. Also, the following two developments have taken place that may affect the company's tax

position as well as Carol's personal tax position:

Modern Floors has signed a long$-$term contract to supply products to a large national chain organization. The contract will

begin early in the new year. Operating profits for next year will increase by approximately $$180,000.$

Carol has decided to sell $30\%$ of her common shares in the company to a senior manager for $$400,000.$ She originally

purchased the entire share capital of the company seven years ago for $$100,000.$

While Carol is pleased with these developments, she is also concerned about their tax consequences. She understands that

corporate tax rates increase when a certain level of income is reached. Carol has never sold any capital property before, but

is aware that a friend of hers recently sold the shares of his corporation and was entitled to claim the capital gains

exemption of $$971,190($for $2023).$ Carol now asks you to address these issues and explain what steps, if any, she can take to

minimize the overall tax impact on the company and on herself.

Carol's personal marginal tax rate is $50\%.$ Assume a provincial corporate general rate of $12\%$ and a small business income

tax rate of $4\%.$

Required:

For the current taxation year, determine the following for Modern Floors: $($a$)$ net income for tax purposes; $($b$)$ taxable

income; and $($c$)$ federal and provincial tax payable.

Explain to Carol the tax impact of the projected higher corporate profits for next year.

Identify any actions which the corporation can take this year or next year that will be advantageous for the corporation

and$/$or Carol.

Describe the tax consequences to Carol arising from the proposed sale of shares. What steps, if any, can she take to

minimize any potential tax on the sale?

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