TK Ltd. carries on a restaurant business in Toronto. Grace Kraft is the sole shareholder of TK Ltd. She has owned and operated the business for 35 years. Due to the recent decline in business, Grace decided that she would like to sell her common shares to her cousin Vinny who recently graduated from culinary school. The TK Ltd. shares were recently valued at $4,000,000 and her ACB and PUC is $100,000.

Vinny is excited about the opportunity to become a restaurant owner. He does not, however, have the funds to purchase the shares of TK Ltd. The bank recently declined to offer him a loan due to his excessive personal debts and his poor credit history.

Grace has been told that she may be able to complete the sale to Vinny on a tax-deferred basis by reorganizing the share capital of TK Ltd.

Required:

a) Provide Grace with an explanation of how a reorganization of the share capital of TK Ltd. can help her make the sale to Vinny.

b) Discuss whether Grace can receive non-share consideration (boot) as part of the reorganization of share capital.

c) Assuming the TK Ltd. shares meet the definition of a qualified small business corporation share (QSBC), can Grace make use of the lifetime capital gains exemption on the reorganization of share capital?