Problem 4 ITA: 8612) Mr. Fresser, aged 67, owns 80% of the common shares of Fresser Ltd., a CCPC. The other 20% is owned by his daughter, Elana, aged 42, works full time in the business located in Stratford, Ontario, with Mr. Fresser for the past 22 years. Mr. Fresser is ready to retire and wants Elana to take over the company completely. When the business was incorporated and capitalized, the 1,000 common shares were issued to Mr. Fresser and his daughter for $62,500 in total. They now have a fair market value of $625,000. Mr. Fresser proposes a capital reorganization in which he would give up his common shares in return for $90,000 in cash and $410,000 in retractable voting preferred shares with a redemption value of $410,000 which he could redeem at his convenience. As a result, Elana could own all of the outstanding common shares. Mr. Fresser plans to use the $90,000 of cash to use up his remaining TFSA room and purchase a new vehicle. Mr. Fresser plans to redeem the preferred shares over time to provide him with retirement income. Mr. Fresser would like to know what the optimal consideration for the exchange would be. He is wondering if there will be any tax on the exchange of his common shares and would like to minimize tax if possible. He is wondering if he should instead take back $90,000 of cash and $300,000 of retractable voting preferred shares to transfer some of the value of the company to his daughter now. The tax partner of your firm has asked you to consider Mr. Fresser's objectives and prepare a memo analyzing the relevant issues. - REQUIRED (A) Assess the situation. (B) Identify the issues. (C) Analyze the issues. (D) Advise/recommend. Problem 4 ITA: 8612) Mr. Fresser, aged 67, owns 80% of the common shares of Fresser Ltd., a CCPC. The other 20% is owned by his daughter, Elana, aged 42, works full time in the business located in Stratford, Ontario, with Mr. Fresser for the past 22 years. Mr. Fresser is ready to retire and wants Elana to take over the company completely. When the business was incorporated and capitalized, the 1,000 common shares were issued to Mr. Fresser and his daughter for $62,500 in total. They now have a fair market value of $625,000. Mr. Fresser proposes a capital reorganization in which he would give up his common shares in return for $90,000 in cash and $410,000 in retractable voting preferred shares with a redemption value of $410,000 which he could redeem at his convenience. As a result, Elana could own all of the outstanding common shares. Mr. Fresser plans to use the $90,000 of cash to use up his remaining TFSA room and purchase a new vehicle. Mr. Fresser plans to redeem the preferred shares over time to provide him with retirement income. Mr. Fresser would like to know what the optimal consideration for the exchange would be. He is wondering if there will be any tax on the exchange of his common shares and would like to minimize tax if possible. He is wondering if he should instead take back $90,000 of cash and $300,000 of retractable voting preferred shares to transfer some of the value of the company to his daughter now. The tax partner of your firm has asked you to consider Mr. Fresser's objectives and prepare a memo analyzing the relevant issues. - REQUIRED (A) Assess the situation. (B) Identify the issues. (C) Analyze the issues. (D) Advise/recommend