John Cena owns the common shares of WWF Ltd., a CCPC. The shares have a PUC and adjusted cost base of $1,000 and a fair market value of $10,000. Mr. Cena wants to effect a reduction in the value of the common shares and has caused the corporation to undertake a capital reorganization. The corporation will exchange the common shares for the following package of consideration:

Cash (at FMV) $ 100
Preferred shares (at FMV) 5,900
Common shares (at FMV) 4,000

Total $10,000

Required: Show all calculations whether or not necessary to the final answer.
Determine the tax consequences of Section 86 to John Cena as a result of the capital reorganization on the following:

A. Issuance of New Shares
B. Redemption of Old Shares 

Answer rating: 100% (QA)

Sol The tax consequences of Sec 86 to John Cena are as below A Issuance of New Shares PUC of New Sha... View the full answer