Question
The following transactions pertain to independent Canadian-controlled private corporations and their shareholders. Each transaction described below is separate and distinct from the other transactions. (a)
The following transactions pertain to independent Canadian-controlled private corporations and their shareholders. Each transaction described below is separate and distinct from the other transactions.
(a) Ethan Ltd. issued 150 preferred shares with a PUC (Paid-up capital) equal to $100 for each share for $11,000 cash and other assets with a fair market value of $3,000.
(b) Maya Ltd. redeemed its preferred shares, which have a PUC (Paid-up capital) of $11,000 in total, for $15,000. The shareholder, who owns all of these shares, paid $10,000 for them.
Required:
For each of the above transactions, describe the effect:
(i) on the income of the shareholder (using the 17% gross-up and tax credit),
(ii) on the PUC (Paid-up capital) of the shares to the corporation after the transaction, and
(iii) on the ACB (Adjusted cost base) of the shares to the shareholder after the transaction.
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