The Lyons family own Lyons Renovations Inc. (LRI), a private corporation which has an April 30 year

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The Lyons family own Lyons Renovations Inc. ("LRI"), a private corporation which has an April 30 year end. LRI operates in the GTA. LRI oversees and co-ordinates major renovations of both residential and commercial properties from start to finish. The company employs project managers as well as various tradespersons (plumbers, electricians, etc.). LRI also engages on both an employee and independent contractor basis, personnel required for a particular project such as architects, designers, tradespersons and labourers. LRI has been very successful over the years.

Richard Lyons, who is age 62, started the company many years ago and worked long hours in the company for literally decades. The company has grown exponentially, particularly during the pandemic. Richard has recently retired and let the younger generation take over.

His wife Julie, age 60, has never really worked in the business other than to help out for a day here and there in the early years answering the phones and the like. Julie is a successful self-employed real estate agent so there have been synergies with Julie referring home purchasers to LRI for renovations. In fact, Julie and Richard met through such a referral many years ago.

The Lyons' eldest child Abigail, age 35, is now running the business. She is working long hours, at least 60 hours per week on average, and often complains that she has no time for her family. The business is growing so Abigail expects her workload to only grow. She doesn't think it likely that either of her younger siblings will ever become involved in the business. Abigail has hired a manager which has been a great help.

The Lyons' middle child, Oliver, is 23. Oliver is in his final year at Osgoode Law School and hopes to establish a career as a criminal lawyer. He has no interest in working for LRI in the future. He did work for LRI in the summers during high school and his first couple of years of university to help fund his education, probably averaging 35 hours per week for the summer months.

The youngest child, James, is 16. He doesn't have any interest in the business at this point in time. He has always loved plants and gardening and would like to become a landscape architect, maybe getting referrals from LRI.

The shareholdings in LRI are as follows:

• Richard - 1,000 voting preferred shares (1 vote per share), redeemable and retractable at $5,000,000 with a discretionary dividend rate; Richard contributed $100 to LRI for these shares

• Julie - 1,000 voting preferred shares, (1 vote per share) redeemable and retractable at $5,000,000 with a discretionary dividend rate; Julie contributed $100 to LRI for these shares; she has made no other monetary contributions to LRI

• Abigail - 100 Class A voting common shares

• Oliver - 100 Class B voting common shares

• James - 100 Class C voting common shares

The three classes of common shares are equal in every respect except that dividends can be paid on each class independently. All three classes specify one vote per share. It is estimated that the current fair market value of all the common shares in total is approximately $5,000,000. Each of the children paid $10 to LRI for their shares. Each shareholder purchased their shares with their own money. The total value of LRI is approximately $15,000,000 - preferred shares worth $10,000,000 and common shares worth $5,000,000). All this value is derived from the service operations of LRI.

The Richard and Julie want to know the tax implications of paying dividends to each family member. They know there is a tax provision that can prevent income splitting with dividends but are not sure of the details and how it would apply in their family situation. Provide a full analysis for each family member. They would like an answer on this issue before the end of April.