Little Co.is a Canadian controlled private corporation and Large Co.is a public Canadian corporation.Both corporations have a paid-up capital balance of $25,000.Which of these statements is TRUE, provided the proper legal steps are followed?
A)If Little Co.makes a payment of $25,000 to its shareholders by reducing its paid-up capital, there will be no tax consequence for the shareholders.
B)If Little Co.makes a payment of $25,000 to its shareholders by reducing its paid-up capital, only 50% of the payment will be taxable.
C)If Large Co.makes a payment of $25,000 to its shareholders by reducing its paid-up capital, there will be no tax consequence for the shareholders.
D)If Large Co.makes a payment of $25,000 to its shareholders by reducing its paid-up capital, only 50% of the payment will be taxable.

Question

Quizplus · Accepted Answer

When a Canadian controlled private corporation like Little Co. returns capital to its shareholders by reducing its paid-up capital, there is generally no immediate tax consequence for the shareholders, provided the return does not exceed the adjusted cost base of the shares.

Little CoIs a Canadian Controlled Private Corporation and Large Co