Brynn Costello Owns All of the Common Shares of Fresh

question 2

Essay

Brynn Costello owns all of the common shares of Fresh Horizons Inc., a Canadian-controlled private corporation.The shares have a fair market value of $150,000, an ACB of $30,000, and a PUC of $5,000.Brynn would like to retire soon, and Brynn's only child Emory has expressed interest in taking over the business.Emory does not have a lot of disposable income at this time, and as such, a Section 86 reorganization of share capital has been recommended to Brynn.Brynn's common shares will be converted to preferred shares, redeemable for $150,000.Emory will then purchase a new class of common shares at a nominal value.
Required:
Discuss the immediate tax consequences of the reorganization of share capital for Brynn, indicating the ACB and the PUC of the new preferred shares.

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Definitions:

Average Fixed Costs

The fixed costs of production (expenses that do not change with the level of output) divided by the quantity of output produced.

Total Fixed Costs

The sum of all costs that do not change with the level of output produced by a business, such as rent, salaries, and insurance.

The Barber Shop

This term commonly refers to a place where men can get their hair cut and sometimes other grooming services, serving as a social hub in many communities.

Fixed Input

A resource used in production that cannot be changed in the short term, such as buildings and machinery.