Q1Q2

Topics: Preferred stock, Million, Dividend tax Pages: 12 (1467 words) Published: November 25, 2013
Q1.

84.1 applies, because
1. transfer is made by Canadian resident individual, Ms K.
2. Shares of a taxable Canadian Corporation
3. To a non-arm’s length corporation, Ms K does not deal at arm’s length with Holdco 4. Immediately after the transfer the two company, KML and holdco are connected since Holdco controls KML after transfer.

PUC reduction: 84.1(1)(a)
Increase in LSC 1000000
Greater of PUC: 100000
ACB: 400000 400000
Less: FMV of boot 800000
Excess if any Nil
PUC reduction 1000000
PUC of holdco preferred shares Nil

Deemed Dividiend: 84.1(1)(b)
Boot 800000
Less: greater of: PUC 100000
ACB 400000 400000
Deemed Dividend 400000

Capital Gain/Capital loss
EA 800000 85(1)(a)
Less Deemed Dividend 400000
Adjusted POD 400000 S. 54
ACB 400000
Capital Gain 0 39(1)(a)
(CGE cannot be used)

ACB of preferred shres taken by Ms K:
EA 800000
Less Boot 800000 85(1)(f)
ACB 0 85(1)(g)

The KML shres (now hold by holdco ) will have:
ACB = EA = 800000 85(1)(a)
PUC = 100000 (unchanged)

Q2

Take less boot, ie. Take debt receivable = 400000 and shares = 1400000. So there will be no deemed dividend and a capital gain of 400000 to use CGE

Q1.

84.1 applies, because
1. transfer is made by Canadian resident individual, Ms K.
2. Shares of a taxable Canadian Corporation
3. To a non-arm’s length corporation, Ms K does not deal at arm’s length with Holdco 4. Immediately after the transfer the two company, KML and holdco are connected since Holdco controls KML after transfer.

PUC reduction: 84.1(1)(a)
Increase in LSC 1000000
Greater of PUC: 100000
ACB: 400000 400000
Less: FMV of boot 800000
Excess if any Nil
PUC reduction 1000000
PUC of holdco preferred shares Nil

Deemed Dividiend: 84.1(1)(b)
Boot 800000
Less: greater of: PUC 100000
ACB 400000 400000
Deemed Dividend 400000

Capital Gain/Capital loss
EA 800000 85(1)(a)
Less Deemed Dividend 400000
Adjusted POD 400000 S. 54
ACB 400000
Capital Gain 0 39(1)(a)
(CGE cannot be used)

ACB of preferred shres taken by Ms K:
EA 800000
Less Boot 800000 85(1)(f)
ACB 0 85(1)(g)

The KML shres (now hold by holdco ) will have:
ACB = EA = 800000 85(1)(a)
PUC = 100000 (unchanged)

Q2

Take less boot, ie. Take debt receivable = 400000 and shares = 1400000. So there will be no deemed dividend and a capital gain of 400000 to use CGE

Q1.

84.1 applies, because
1. transfer is made by Canadian resident individual, Ms K.
2. Shares of a taxable Canadian Corporation
3. To a non-arm’s length corporation, Ms K does not deal at arm’s length with Holdco 4. Immediately after the transfer the two company, KML and holdco are connected since Holdco controls KML after transfer.

PUC reduction: 84.1(1)(a)
Increase in LSC 1000000
Greater of PUC: 100000
ACB: 400000 400000
Less: FMV of boot 800000
Excess if any Nil
PUC reduction 1000000...
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