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Mrs. Andrews, a Canadian resident, has just told you about a proposed transaction she is planning to undertake shortly. She would like your advice on

image text in transcribedimage text in transcribed Mrs. Andrews, a Canadian resident, has just told you about a proposed transaction she is planning to undertake shortly. She would like your advice on her plan. She recently set up Von Trapp Holdings Limited (Holdings) with 100 common shares, which she owns and are worth $1 each. The plan is for her to sell her shares in Plummer Enterprises Inc. (Plummer) to Holdings in order to crystallize her capital gains exemption and for her to have a holding company to accumulate capital away from the risks of the business. She has never claimed the capital gains exemption in the past. Mrs. Andrews currently owns 100% of the outstanding common shares of Plummer. Plummer is a small business corporation and meets all the tests for the shares to be qualified small business corpora- tion shares. Plummer and Holdings are both Canadian resident corporations. She purchased the Plummer shares ten years ago from an unrelated third party for their then fair market value of $200,000. The fair market value of the Plummer shares today is $4 million. The paid-up capital of these shares is $1,000. Mrs. Andrews plans to transfer her shares of Plummer to Holdings on December 3rd and has been advised by someone else to jointly elect under section 85 with Holdings and take back the following consideration: (a) Non-interest bearing note for $200,000, and (b) Voting preference shares that are retractable for $3.8 million and have a dividend rate of 6%. She has asked you if she could instead take back a $400,000 note and $3.6 million in shares. You realize early in the discussion that you will need to consider, among other things, the impact of s. 84.1 on this transaction. nt Problems Before you meet with Mrs. Andrews you want to (A) Assess the situation. (B) Identify the issues. (C) Analyze the issues. (D) Advise/recommend

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