Reference no: EM132986717

Question - Dodo Inc. has 50,000 shares of common stock outstanding which were issued for total proceeds of $450,000. On November 30, 2020, a creditor holding debt with a carrying value of $100,000 agrees to take 10,000 newly issued common shares to settle the debt obligation. At the time of this exchange, the shares are trading for $11.25 per share. Mr. Munch owns 1,000 shares in Dodo Inc., which he purchased on the market for $10 on January 15, 2020.

REQUIRED -

PART A: Analyze if there is a deemed divided and provide the ITA reference for this dividend.

PART B: What is Mr. Munch's total Adjusted Cost Base (ACB) for the shares after the transaction in Part A.

Grass Corporation, after selling all its assets and paying all liabilities, has $1,000,000 for distribution to its only shareholder, Kenny Patel. The paid-up capital (PUC) of the Grass Corporation is $100,000 and Mr. Patel's adjusted cost base (ACB) is also $100,000.

The balance in Cumulative Dividend Account (CDA) is $175,000. The company makes an appropriate election to have the distribution of $175,000 treated as capital dividend under Ssec 83(2).

What are the consequences of distributing the $1,000,000 to the corporation's shareholder, Mr. Kenny Patel?

At the time of its incorporation, Taylor Ltd. issued 176,000 common shares to Mr. Taylor in return for $3,960,000 in cash ($22.50 per share). All the shares were issued to Mr. Ken Taylor, the founder of the Company. Mr. Taylor is still holding all the originally issued shares, except for 30,000 shares that Mr. Taylor sold to his sister Laura Taylor for $18.75 per share, the estimated fair market value of the shares at that time.

Ken & Laura do not get along very well. As such Taylor Ltd., will redeem all of Laura's 30,000 shares at a price of $24.35 per share.

Determine the tax consequences of this redemption and Laura's disposition of the shares.