Mr. X is the only shareholder of X inc., a CCPC (Canadian-controlled private

corporation). X inc. income has consistently been under the small business deduction

(SBD) limit. X inc. has a capital dividend account of $80,000. Extra information provided:

Prior to the transactions

Paid-up capital (PUC) Adjusted cost base (ACB)

- Common shares ($1/share) 40,000 40,000

- Preferred shares ($1/share) 160,000 160,000

Assets (FMV) 2,300,000

Liabilities 1,100,000

Mr. X is deciding between different choices to get some cash from his corporation during the

tax year (20X1).

a) Payment by X inc. to Mr. X of a salary of $80,000.

b) Payment by X inc. to Mr. X of a non-eligible dividend of $80,000 on the common

shares. The amount is not paid from the capital dividend account.

c) X inc. will redeem 16,000 preferred shares to Mr. X at 5$/share for a total

payment of $80,000.

d) Payment by X inc. to Mr. X as a return of capital (PUC) of $80,000 for 1/2 the

preferred shares.

e) Payment by Ms. Y of $80,000 to Mr. X to purchase 20% (2,000 shares) of the

common shares of X inc.

f) Wind-up of X inc. and distribution of all the net funds available for distribution to Mr.

X. Assume the preferred shares already have been redeemed in a previous year and

doesn't exist anymore. Assume the assets to be 100% cash and no RDTOH for this option.

g) Payment by X inc. to Mr. X of a dividend of $80,000 on the common shares from

the capital dividend account.

Required:

For each option (which are all independent of each other), describe the tax consequences (effect on net income, effect on

taxable income, effect on tax payable, effect on paid-up capital, effect on adjusted cost base, if

applicable) with calculations during the year 20X1 for the shareholder (Mr. X), for the

corporation (X inc.) and the potential shareholder (Ms. Y). Specify if no tax impact.