Jason purchased all of the common shares of Quality Appliances Ltd., a Canadian-controlled private corporation, about 20 years ago for $50,000. The paid-up capital of the shares was $25,000. These shares have recently been valued at $125,000.
Big Distributors Ltd., a Canadian, arm's length corporation, has offered to buy all of Jason's shares. The following alternatives have been presented to Jason:
(a) $25,000 in cash and $100,000 of FMV in common shares of Big Distributors Ltd.
(b) $125,000 of FMV in Big Distributors Ltd.'s common shares.
Jason is at arm's length with Big Distributors Ltd. and, after acquiring its shares, will neither control Big Distributors Ltd. nor own more than 50% of the FMV of its shares.
REQUIRED
(A) What are the tax consequences to Jason if these transactions are conducted using the provisions of section 85.1?
(B) What are the tax consequences to Jason if these transactions are conducted using the provisions of section 85?