The Browns Have Owned and Operated the Tile Company Inc

question 3

Multiple Choice

The Browns have owned and operated The Tile Company Inc. for thirty years and are ready to retire. Their long-time employee wishes to buy the company but does not have the funds available to do so at this time. Which section of the Income Tax Act would allow the Browns to transfer the value of their common shares to preferred shares on a tax-deferred basis while issuing new common shares to the employee for a nominal value?

• A)Section 87
• B)Section 86
• C)Section 88
• D)This transaction is not within the spirit of the Income Tax Act and would be subject to GAAR.

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Definitions:

Net Income

Total revenue minus total expenses, indicating the profitability of a company over a specified period.

Net Loss

The situation where a company's expenses exceed its revenues during a specific period, leading to a negative profit.

Long-term Debt

Loans, bonds, or other forms of financing that are repayable over a period longer than one year.

Cash Dividends

These are payments made by a company out of its profits to its shareholders, usually in the form of cash.