On March 20th of the current year, Stephen sold his common shares of Salt Ltd., an eligible small business corporation, for $800,000. His shares had an ACB of $100,000. On October 1st of the current year, Stephen purchased newly issued common shares of Pepper Ltd., also an eligible small business corporation. He paid $400,000 for the shares of Pepper Ltd. Income tax reference: ITA 44.1.
a) Determine the maximum amount of capital gain on the sale of the Salt Ltd. shares that can be deferred.
b) What will be the ACB of the Pepper Ltd. shares, assuming Stephen elects to defer the maximum capital gain possible, on the Salt Ltd. shares?