Bob is a farmer who lives in rural Ontario.Bob's most valuable asset is his land, which he bought many years ago for $400,000.The land is worth $2,400,000 today.Bob is a successful farmer, earning $100,000 of profit from his farm on an annual basis.Bob also has income from other sources, such that he is in the highest personal tax bracket.

Bob was speaking with his neighbour (also a farmer) who told him that corporations can provide significant tax benefits.As a result, Bob wants to incorporate a new company - Bob's Farm Inc. ("BFI") - and have the corporation own the land and operate the farm in the future.Bob doesn't own any other corporations.

Based on this information, answer the following questions:

1) What amount of tax, per year, does the CRA collect on the farming profit from Bob CURRENTLY?

2) What amount of tax, per year, would the CRA collect on the farming profit IN THE FUTURE if Bob transferred his farming business to BFI?

3) In the absence of any "special rules," suppose Bob SOLD the land to BFI at its fair market value so that BFI could carry on the farming business in the future.What would be the resulting tax implications for:

a) Bob

b) BFI

4) Instead, suppose Bob gave the land as a GIFT to BFI so that BFI could carry on the farming business in the future. What would be the resulting tax implications for:

a) Bob

b) BFI

5) What does section 85 allow a taxpayer to do?

6) What is the benefit of using section 85?

7) What conditions must be met to use section 85?

8) Can Bob use section 85 to transfer the land to BFI?If yes, explain why.If no, explain why not.

9) Regardless of your response to 8) above, assume that section 85 can be used.Bob incorporates BFI and subscribes for 100 Common shares in exchange for $100.Bob then transfers the land to BFI and BFI issues 100 Preferred shares to Bob in exchange for the land, pursuant to the rules in section 85.Bob doesn't want to pay any taxes on this transaction.What are the resulting tax implications for:

a) Bob

b) BFI