a. Marc is the son-in-law of Bernard. Bernard owns all the issued shares of Mammoth Inc., an import company whose taxation year ends December 31. In September 2011, Mammoth Inc. granted Marc a $10,000 loan, bearing interest at the market rate in effect at that time, so that he could purchase a snowmobile. Assuming that the loan is repaid in 2013 and Marc has always made his interest payments on time, what will be the tax consequences of this loan?
1.None.
2.Under section 80.4, Marc must include a taxable benefit in his income each year.
3.Bernard must include the amount of the loan in his 2011 income.
4.Marc must include the amount of the loan in his 2011 income.
b. Sophie-Anne wants to acquire a 20% interest in Bigprofit Inc. She must pay $250,000 to the corporation, which will issue her 10,000 voting and participating shares of the corporation, representing 20% of the voting and participating shares of the corporation after the issue. Why would Sophie-Anne want shares of a separate class from that of the current shareholders, who had subscribed their shares for $10 each?
1.She wants the PUC of her shares to be $250,000.
2.She does not want to dilute the ACB of her shares with that of the current shareholders.
3.She wants to avoid having a taxable benefit conferred on her.
4.She does not want to be taxed on the deemed dividend under subsection 84(4) that would result from the reduction of the PUC of her shares.
c. Caroline Murphy transfers to Fleury Inc., a corporation of which she is the sole shareholder, a piece of land having an FMV of $50,000 and an ACB of $20,000 in exchange for Class C shares having a PUC and an FMV of $75,000. No Class C shares were issued before the transaction.
What are the tax consequences for Caroline?
1.A taxable benefit of $25,000 under section 15(1) and a taxable capital gain of $15,000
2.A deemed dividend of $25,000 and a taxable capital gain of $27,500
3.A taxable benefit of $25,000 under subsection 15(1), a taxable capital gain of $27,500, and a deemed dividend of $25,000
4.A deemed dividend of $25,000 and a taxable capital gain of $15,000
d. A corporation has two shareholders who each hold 50% of the common shares of the corporation. To one of them, who does not reside in Canada, the corporation sells a painting by a well-known European artist for $10,000. The corporation had paid $15,000 for this painting several years ago. At the time of the sale, the painting is evaluated at $23,000. What are the tax consequences of the transaction?
1. The corporation incurs a deductible capital loss of $2,500.
2. The corporation realizes a taxable capital gain of $4,000, and the shareholder has a taxable benefit of $5,000.
3. The shareholder has a deemed dividend of $13,000, and the corporation realizes a taxable capital gain of $4,000.
4. The shareholder has a taxable benefit of $5,000, and the corporation incurs a capital loss of $5,000.
e. When property is transferred under subsection 85(1), which one of the following conditions must be met?
1. The transferor must be a taxable Canadian corporation.
2. The transferor must be a Canadian resident.
3. The transferee must be a taxable Canadian corporation.
4. The transferee must be affiliated with the transferor.
f. What condition must be met to benefit from a rollover as provided for in section 85 in the transfer of a building?
1. The building must be situated in Canada.
2. The building must be property owned for rental purposes.
3. The building must not be included in the transferor's inventory.
4. The building must be the only property included in the prescribed class of property.
g. In a rollover under section 85, that portion of the agreed amount that is attributed to the preferred-share consideration, if any, is equal to the lesser of the FMV of the preferred shares after the disposition and which other amount?
1. The amount by which the agreed amount exceeds the FMV of the property transferred to the corporation
2. The amount by which the agreed amount exceeds the ACB of the property transferred to the corporation
3. The amount by which the agreed amount exceeds the FMV of the non-share consideration
4. The amount by which the agreed amount exceeds the FMV of the common shares after the disposition
h. When calculating the cost of the consideration received by the transferor, the agreed amount for the transferred property must be distributed among the assets received by the transferor. In what order is this distribution done?
1. Non-share consideration, preferred shares, common shares
2. Preferred shares, common shares, non-share consideration
3. Common shares, preferred shares, non-share consideration
4. No order is stipulated by the ITA. However, the transferor must inform CRA of the order chosen.
In 2000, Martin acquired 100 Class A shares of Sultan Ltd. from Michelle for $20,000. Before the sale to Martin, Michelle was the sole shareholder of Sultan Ltd., and she held 500 Class A shares.
i. Michelle had acquired the 500 shares on the incorporation of Sultan Ltd., when she paid $5,000 for the issue of 500 shares. Following a dispute between Martin and Michelle, Martin wants to withdraw from Sultan. According to an offer made to him, Sultan Ltd. will purchase his 100 Class A shares from him for $50,000. What would be the tax consequences for Martin if he accepted the offer?
1. A taxable capital gain of $15,000
2.A deemed dividend of $30,000
3.A deemed dividend of $49,000 and a deductible capital loss of $9,500
4.A deemed dividend of $45,000 and a taxable capital gain of $15,000
j. Zarra transferred a piece of land to her holding company, Zarra Holding Ltd. The land had an adjusted cost base of $1,000 and a fair market value of $25,000. As consideration for the transfer, Zarra received a $24,999 note and a preferred share redeemable for $1. Zarra filed an election under subsection 85(1) to have the transaction take place with no tax consequences, and the agreed amount on the form is equal to the adjusted cost base of $1,000. What will be the tax consequences of the transfer for Zarra?
1.None
2.A taxable capital gain of $11,999.50
3.A taxable capital gain of $12,000
4.A deemed dividend of $24,000