A shareholder of a Canadian corporation is planning to transfer a building to the corporation and wishes to avoid tax on the transaction.The building originally cost $150,000.It has a UCC of $85,000 and a fair market value of $225,000.Which of the following will meet the taxpayer's wish?
A)The shareholder can receive non-share consideration of $150,000 and preferred shares of $85,000.
B)The shareholder can receive non-share consideration of $140,000 and preferred shares of $10,000.
C)The shareholder can receive non-share consideration of $85,000 and preferred shares of $140,000.
D)The shareholder can receive non-share consideration of $225,000 and preferred shares of $0.

Question

Quizplus · Accepted Answer

The shareholder can receive non-share consideration of the UCC amount ($85,000) and preferred shares for the remaining value of the building ($140,000). This will avoid tax on the transfer while allowing the shareholder to hold preferred shares in the corporation. Option A is not appropriate as it would require the shareholder to receive consideration for the original cost of the building, which is not reflective of the current fair market value. Option B is not appropriate as it does not reflect the full fair market value of the building. Option D is not appropriate as it would require the shareholder to pay tax on the full fair market value of the building.

A Shareholder of a Canadian Corporation Is Planning to Transfer