The following situations deal with a Canadian-controlled private corporation and its shareholders. Each transaction described below is separate and distinct from the other transactions.
(a) Capital Inc. issued 135 preferred shares with PUC equal to $110 each for $11,050 cash and assets with a FMV of $2,800.
(b) Paid Ltd. has shares with a FMV of $35,000 and a PUC of $5,500. Paid Ltd. is considering making the following paid-up capital reductions on these shares. Their shareholders have an ACB of $16,000 for their shares:
(i) Payment of $3,750; and
(ii) Payment of $8,750.
(c) Up Ltd. has 4,500 common shares with a PUC of $22,500. In March of this year the corporation declared and distributed a 15% stock dividend in common shares with a PUC of $3,375.
(d) (i) The sole shareholder of Baker Corp. Ltd. contributed assets worth $38,400 to the corporation in return for cash of $15,400 and preferred shares with a PUC of $23,000 (redemption value of $23,000).
(ii)A year later, the sole shareholder redeemed the preferred shares.
REQUIRED
Discuss the tax consequences for deemed dividends [sec. 84] for each of the above transactions.