Joe Saz is employed by Chaincode Laboratories Inc., (“Chaincode”), a widely-held Canadian private company located in Toronto. Joe has an opportunity to purchase 100,000 common shares of Chaincode at their fair market value of $1 per share. Joe can acquire the shares personally or via his RRSP (assume that the shares are eligible for investment through an RRSP).

Chaincode has historically paid quarterly dividends and Joe expects that the shares will significantly appreciate in value in the near future. Joe plans to retire in 5 years and sell his shares.

Joe is excited about making the investment, however he is not sure if he should acquire the Chaincode shares personally, or purchase through his RRSP. Since Joe does not have cash on hand, he will take a $100,000 personal loan from a bank to finance the purchase. He has come to you for tax advice.

REQUIRED

1. What are the tax advantages of acquiring the shares personally, as opposed to purchasing them through his RRSP? Hint: first, consider personal tax implications of each investment alternative and then compare tax results (calculations are not required).

2. What are the tax disadvantages of acquiring the shares personally, as opposed to purchasing the shares through his RRSP? Hint: first, consider personal tax implications of each investment alternative and then compare tax results (calculations are not required).

3. What questions about Joe’s financial situation and personal tax profile do you need answered in order to appropriately advise Joe? List them.

Answer rating: 100% (QA)

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