Jonah Ouellette owns $80\%$ of the outstanding common shares of Ouellette Ltd$.$ His original cost of these shares was $ $224$ comma $000$ on December$31,2020.$ On this same$$ date, his adult$$ son, Barrett Ouellette$,$ purchased the remaining $20\%$ of the common shares of Ouellette Ltd$.$ for $ $56$ comma $000.$

Additional Information

Jonah$\text{'}$s original investment of $ $224$ comma $000$ is also the PUC and ACB of his shares. On December$31,2023,$ the FMV of Jonah$\text{'}$s shares is $ $298$ comma $000.$

As Jonah is in poor$$ health, he would like to retire. Given$$ this, the intends to freeze the value of his estate. He would also like to transfer future growth in Ouellette Ltd$.$ to his$$ son, Barrett.

To achieve these$$ objectives, he will exchange his common shares in Ouellette Ltd$.$ for cash of $ $112$ comma $000,$ plus$$ fixed$-$value redeemable preferred shares with a FMV of $ $186$ comma $000.$ This is also the legal capital of the shares.

The company has a nil balance in its GRIP account.

The exchange takes place on December$31,2023.$

Requirement A$.$ Determine the PUC of the newly issued$$ fixed$-$value redeemable preferred shares.

Start by calculating the PUC reduction.

Legal capital of preferred shares

Less: excess, if any

PUC of preferred shares given up

Over FMV of NSC

Amount of excess

PUC reduction

Part $2$

$$Next$,$ calculate the resulting PUC of the new preferred shares.

Legal capital of preferred shares

Less: PUC reduction

PUC of preferred shares

Part $3$

Requirement B$.$ Determine the ACB of the newly issued$$ fixed$-$value redeemable preferred shares.

ACB of preferred shares given up

Less: FMV of NSC

ACB of preferred shares

Part $4$

Requirement C$.$ Determine the proceeds of redemption that would be used to calculate any ITA$84(3)$ deemed dividend resulting from the reorganization as well as the POD that Jonah would use to calculate any capital gain or capital loss resulting from the reorganization.

In this$$ step, calculate the proceeds of redemption that would be used to calculate any ITA$84(3)$ deemed dividend resulting from the reorganization.

PUC of preferred shares

Add: FMV of NSC

Proceeds of redemption

Part $5$

$$Next$,$ calculate the POD that Jonah would use to calculate any capital gain or capital loss resulting from the reorganization.

ACB of preferred shares

Add: FMV of NSC

POD of shares given up

Part $6$

Requirement D$.$ Determine the income tax consequences for Jonah of this reorganization of the capital of Ouellette Ltd$.$

The amount for the proceeds of redemption is

$$

less than the PUC of the shares given up$.$

equal to the PUC of the shares given up$.$

greater than the PUC of the shares given up$.$

$$So$,$ there would be

$$

a deemed dividend under ITA $85(1).$

property income on the difference.

a deemed dividend under ITA $84(3).$

no deemed dividend under ITA $84(3).$

The amount for the proceeds of disposition is

$$

less than the ACB of the shares given up$.$

equal to the ACB of the shares given up$.$

greater than the ACB of the shares given up$.$

$$So$,$ the exchange results in

$$

a capital loss.

a capital gain.

no capital gain or capital loss.

Part $7$

Requirement E$.$ Determine the income tax consequences for Jonah if the new Ouellette Ltd$.$ preferred shares are redeemed for $ $186$ comma $000.$

In this$$ step, calculate the$$ non$-$eligible deemed dividend under ITA$84(3)$ from the redemption of the preferred shares.

Redemption proceeds

Less: PUC of preferred shares

ITA $84(3)$ deemed dividend $($non$-$eligible$)$

Part $8$

$$Next$,$ calculate the capital gain or loss from the redemption of the preferred shares. $($For entries with a$$ $$0$ balance, make sure to enter$"0"$ in the appropriate input$$ field.$)$

POD of preferred shares

Less: ITA $84(3)$ deemed dividend $($non$-$eligible$)$

Modified POD of preferred shares

Less: ACB of preferred shares

Capital gain $($loss$)$

Part $9$

$$Now$,$ calculate the taxable$$ non$-$eligible dividend.

ITA $84(3)$ deemed dividend $($non$-$eligible$)$

$+$

Gross up of deemed dividend

$=$

Taxable non$-$eligible dividend

$+$

$=$

Part $10$

$$Next$,$ calculate the federal dividend tax credit. $($Round your answer to the nearest whole$$ dollar.$)$

Gross up of deemed dividend

$\backslash$times

Federal dividend tax credit rate

$=$

Federal dividend tax credit

$\backslash$times

$=$

Part $11$

Requirement F$.$ Determine the income tax consequence for Jonah if the new Ouellette Ltd$.$ preferred shares are sold for $ $186$ comma $000.$

Calculate the taxable capital gain from the sale of the preferred shares.

POD of preferred shares

Less: ACB of preferred shares

Capital gain

Inclusion rate

$(1-$: $2)$

Taxable capital gain

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