Holding Ltd., a Canadian-controlled private corporation, acquired 100% of the shares of Operating Ltd. on incorporation in 2022 for $100,000. The shares of Operating Ltd. have appreciated in value since then. A large part of the share appreciation is attributed to land Operating Ltd. owns which has doubled in value. The post-1971 retained earnings of Operating Ltd. are currently $500,000 (safe income).

An arm’s-length company, Acquisition Corporation, has offered to purchase 100% of the shares of Operating Ltd. for $900,000. In the course of the acquisition discussions, Holding Ltd. causes Operating Ltd. to pay a dividend of $800,000. Acquisition Ltd. then buys 100% of the Operating Ltd. shares for $100,000. 

Required:

Explain the tax implications for Holding Ltd. on the sale of the shares of Operating Ltd.