Oliver Glenn owns 20% of the shares of Treatz Inc., a Canadian-qualified small business corporation. Oliver purchased the shares from a previous shareholder for $50,000. The stated paid-up capital of the shares is $10,000. Two other shareholders own equal portions of the remaining shares of Treatz. Oliver has decided to sell the shares, which have a market value of $120,000. The shares are to be sold either to the two other shareholders or back to the corporate treasury. All three of the shareholders have used all of their capital gains deductions. Oliver has an employment income of $185,000, a capital gain in the amount of $50,000, and a property income of $20,000 for the current year. All three shareholders are in a 50% tax bracket. The marginal rate on dividends is 43%. The corporate tax rate for Treatz is 13%.

A. Determine the tax cost for Oliver if he sells his shares to 1) the other shareholders. 2) the corporate treasury.

B. Determine the cost of the share purchase for (Round your answer to the nearest whole dollar.) 1) the other shareholders, assuming that the purchase will be made using dividend income paid to the two shareholders from the corporation. 2) the corporation, assuming that the purchase will be made from business profits.

C. Which option is preferential for: 1) Oliver and 2) the other shareholders?

D. What is the significance of Oliver's $50,000 capital gain received in the year if Oliver were to sell the shares back to the corporate treasury?

Answer rating: 100% (QA)

A The tax cost for Oliver if he sells his shares to 1 the other shareholders would be 21000 The tax ... View the full answer