Ms. Chiu owns all of the 100 Class B shares issued by Chiu Ltd., a small business corporation, which was formed by Ms. Chiu about 15 years ago. Her son owns all the Class A shares. The current fair market value of the Class B shares is $100 per share. The paid-up capital value of the shares and their adjusted cost base to Ms. Chiu is presently $5 each. Ms. Chiu would like to know the tax consequences if (a) her shares are redeemed by Chiu Ltd. for their fair market value or, alternatively, (b) she sells her shares to her son for their fair market value.
Ms. Chiu has also sold 100 common shares of Bellco Limited, a company whose shares are listed on a designated stock exchange. She has found out Bellco Limited, itself, had purchased her shares through the exchange for $4.10 each. The paid-up capital value of the shares was $1 each and their cost to Ms. Chiu three years ago was $1.25 each.
REQUIRED
Comment on the tax implication of the above transactions.