Which of the following transactions will not result in a deemed dividend?
A)Paying off $500,000 in debt by issuing shares with a fair market value of $525,000.
B)Redeeming shares for $350,000.The PUC of the shares was $350,000 and the ad-
Justed cost base was $250,000.
C)A liquidating dividend is paid to shareholders in the amount of $400,000.At this time, PUC is reduced by $300,000.
D)A total of $1,000,000 was paid to shareholders as part of a winding-up.The PUC of the shares was $200,000 and there was no capital dividend account balance.

Question

Quizplus · Accepted Answer

A deemed dividend occurs when a corporation takes certain actions that result in a shareholder receiving a benefit (such as the redemption or repurchase of shares) without being taxed on that benefit.

A) Paying off debt with shares that have a fair market value greater than the debt amount results in a deemed dividend because the shareholder is receiving a benefit (the excess fair market value) without being taxed on it.

B) Redeeming shares for an amount equal to the PUC of the shares does not result in a deemed dividend, as the amount received by the shareholder is considered a return of capital and is not taxed as income.

C) A liquidating dividend reduces PUC and may result in a deemed dividend if the amount of the dividend exceeds the shareholder's PUC.

D) Winding-up and distributing the assets of a corporation may result in a deemed dividend if the amount received by the shareholder exceeds their PUC or the corporation's capital dividend account balance.

Which of the Following Transactions Will Not Result in a Deemed