Fromor is a Canadian public company with a taxation year that ends on December 31. It is the policy of Fromor Ltd. to claim maximum CCA for all Classes. On January 1, 2020, Fromor had no balance in its Class 14.1.
What follows is two independent cases involving payments for goodwill and receipts for goodwill. In each case assume that Fromor has no other transactions during 2020 or 2021 that involve Class 14.1
Case One - During 2020, Fromor acquires two businesses. With the first acquisition, a payment is made for goodwill of $127,000. With the second, a payment of $186,000 is made for goodwill. Both of these businesses are absorbed into the other operations of Fromor Ltd.
During 2021, Fromor sells a portion of its business and, as a consequence, receives a payment for goodwill of $142,000.
Case Two - During 2020, Fromor acquires a business. The cost of this business includes a payment for goodwill of $64,000. The business is absorbed into Fromor's other operations and is not operated separately. Also during 2020, Fromor acquires an unlimited life franchise at a cost of $98,000.
During 2021, Fromor sells a portion of its business and, as a consequence, receives a payment for goodwill of $85,000.
Required: Determine the tax consequences for the years 2020 and 2021 in each of these two cases. Your answer should include the January 1, 2022 UCC balance for Class 14.1.

Question

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The Answer of Fromor is a Canadian public company with a taxation year that ends on December 31. It is the policy of Fromor Ltd. to claim maximum CCA for all Classes. On January 1, 2020, Fromor had no balance in its Class 14.1.
What follows is two independent cases involving payments for goodwill and receipts for goodwill. In each case assume that Fromor has no other transactions during 2020 or 2021 that involve Class 14.1
Case One - During 2020, Fromor acquires two businesses. With the first acquisition, a payment is made for goodwill of $127,000. With the second, a payment of $186,000 is made for goodwill. Both of these businesses are absorbed into the other operations of Fromor Ltd.
During 2021, Fromor sells a portion of its business and, as a consequence, receives a payment for goodwill of $142,000.
Case Two - During 2020, Fromor acquires a business. The cost of this business includes a payment for goodwill of $64,000. The business is absorbed into Fromor's other operations and is not operated separately. Also during 2020, Fromor acquires an unlimited life franchise at a cost of $98,000.
During 2021, Fromor sells a portion of its business and, as a consequence, receives a payment for goodwill of $85,000.
Required: Determine the tax consequences for the years 2020 and 2021 in each of these two cases. Your answer should include the January 1, 2022 UCC balance for Class 14.1.

Fromor Is a Canadian Public Company with a Taxation Year