Hold Co Is a Canadian Controlled Private Corporation That Acquired 100

question 3

Essay

Hold Co. is a Canadian controlled private corporation that acquired 100% of the shares of Small Co. in 20x5. Hold Co. paid $50,000 for the shares. Big Co., an arm's length corporation, is now interested in purchasing Hold Co.'s investment in Small Co. Small Co.'s shares are currently worth $500,000 and the retained earnings of the company are $200,000. In order to reduce the fair market value of the shares, Small Co. will pay a dividend of $450,000 to Hold Co., and then sell the shares for $50,000. Small Co. has no RDTOH balances.
Required:
A) Applying the anti-avoidance rules of Subsection 55(2), what are the tax implications for Hold Co. resulting from these transactions?
B) What is the value of Small Co.'s 'safe income'?

• A) Applying the anti-avoidance rules of Subsection 55(2), what are the tax implications for Hold Co. resulting from these transactions?
• B) What is the value of Small Co.'s 'safe income'?

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