Mr. Dip, age 61, is in the business of manufacturing N-95 masks for hospitals, clinics, treatment

centers and started his business by acquiring common shares worth $40,000 in 1989. The ACB

of the shares is $390,000 and are currently value at $1,265,000. Mr. Dip heard from his uncle

Tony, a mob boss in Montreal who knows the ITA by heart, for reasons that cannot be spoken

about on record. He enlightened him about a specific section for estate planning purposes. Mr.

Dip took his advice by looked into this section in the ITA as he wants to pass on his business to

both his sons, Antonio and Tonino, equally. They will both respectively own 50% of the 100

newly issued common shares for $4 each after the transaction. Mr. Dip will exchange his

common shares for 9,000 voting retractable 8% preferred shares with a fair market value of $85

each and a PUC of $35,000.

FMV 1,265,000 ACB 390,000 PUC 40,000 Considration Received NSC (Cash) Preferred Shares 765,000 Step 1: Is there a gift? FMV of Common Shares Exchanged = $ 1,265,000 Less: FMV of (NSC + P/S) = $ (765,000) GIFT S 500,000