Robert Blackwell owns 100% of the outstanding shares of Black Inc., a qualified small business corporation. The shares have a paid-up capital (PUC) and an adjusted cost base of $50,000 and a fair market value of $1,000,000. In order to make full use of his lifetime capital gains exemption, Robert uses Section 85 of the Income Tax Act to transfer these shares to Holdings Ltd. at an elected value of $850,000.As consideration he receives a note for $700,000 and preferred shares with a fair market value and a legal stated capital of $300,000. Robert owns all of the shares of Holdings Ltd.
Required:
What are the tax consequences of this transaction for Robert?