Rogo Dan owns all of the common shares of Julie Inc. which in turn owns all of the shares of two other companies, Opco Inc. and RE Inc. Opco Inc. carries on an active business in Sudbury. RE Inc. owns real estate, of which 100% is used by Opco Inc. in its business. All three corporations are CCPCs. The following are further details:
Julie Inc. assets:
Shares of Opco Inc. at FMV .......................................................... $850,000
Shares of RE Inc. at FMV .............................................................. 800,000
Portfolio investments at FMV ........................................................... 75,000
Opco Inc. assets and liabilities:
Active business assets at FMV ....................................................... $900,000
Term deposits .............................................................................. 50,000
Liabilities ................................................................................. 100,000
RE Inc. assets and liabilities:
Land and building at FMV ........................................................... $800,000
Portfolio investments at FMV ......................................................... 200,000
Mortgage ................................................................................. 200,000
The proportion of assets in each of the companies has been constant over the past three years. Rogo has owned the shares of Julie Inc. for the past five years.
REQUIRED
(A) Determine whether Julie Inc. meets each of the three tests necessary for its shares to be qualifying small business corporation shares.
(B) If the shares of Julie Inc. are not QSBC shares, then suggest ways of purifying Julie Inc. and indicate the tax consequences of your recommendations.