Need an analysis of the tax consequences to Fester

Reference no: EM132409748

Assignment -

Fester is Gomez' uncle and married to Sarah. Fester and his brother-in-law Sam Smith (Sarah's brother) each own 50% (50 common shares each) of Smith Inc. ("Smith"). They inherited the shares from Sam's father when he passed away a few years ago. The paid-up capital of the shares is $100 in total ($50 for 50%), which was also Sam's father's ACB of the shares. The shares had a fair market value of $200,000 in total when Sam's father passed away. The shares of Smith are now worth $1,600,000 in total. I looked at the most recent balance sheet and Smith should be a qualified small business corporation. Fester tells me he has never used any of his capital gains exemption, which I will confirm with CRA. Fester has never worked in the business, although Sarah did before they had children. Sam runs Smith and would like to buy Fester out. He has offered to either redeem Fester's shares, buy them from him personally or have Samco, a company of which he is the only shareholder, buy the shares. For all three alternatives, Fester would be paid fair market value.

Need an analysis of the tax consequences to Fester for all three alternatives. Fester and Sarah are seriously thinking about leaving Canada and moving to Florida for at least 10 years. Fester bought a Condo in Naples, Florida for $900,000 in early November. They would like to live there this winter, come back to Canada for summer and fall 2020 and then move to Florida permanently sometime in 2020 or 2021. Besides the Smith shares and the new home in Naples, Fester owns a home in Hamilton and a rental property in Burlington. Fester and Sarah each own 50% of a Canadian Company, Fester Inc. Fester Inc. has a large portfolio of marketable securities. At one time, Fester Inc. operated an active business but the assets of that business were sold a number of years ago and the after-tax proceeds invested in marketable securities. He and Sarah also have RRSPs. Fester wants to know whether he and Sarah have to (or should) sell everything, including the Smith and Fester Inc. shares, before they cease to be Canadian residents. Fester knows the withholding tax rules for the RRSPs but is not too clear on the other rules. Fester and Sarah were both born in Canada and have always been Canadian residents.

Reference no: EM132409748

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