QUESTION 2 [14 marks]

Drako owns 50,000 shares of Diamond Hands Inc., a publicly traded Canadian corporation.These shares were acquired several years ago at a total cost of $135,000.The shares are now worth $210,000.

In each of the following cases, assume that the purchaser immediately resells the shares for their fair market value of $210,000.

Case 1Drako sells the shares to an arm's length party for $210,000.

Case 2Drako gifts the shares to his 16 year old daughter.

Case 3Drako sells the shares to his adult sister for $110,000.

Case 4Drako sells the shares to his grandfather for $260,000.

REQUIRED

A)For each of the Cases, determine the tax consequences of the disposition to Drako and the tax consequences to the purchaser on the resale of the shares. [7 Marks]

B)For each of the four cases in Part A, explain why adjustments were required, or not required, to Drako's proceeds of disposition or the purchaser's cost. [7 Marks]