When selling a business it is important to know if the corporation that owns the for sale business is a qualified small business corporation. If

When selling a business it is important to know if the corporation that owns the €œfor sale€ business is a qualified small business corporation. If so, the shareholder(s) may qualify for all or some of the $800,000 capital gains exemption if the shares are sold. This question examines this qualification.
The following four situations, (a) through (d), are independent.

* In each case, the active business is carried on in Canada and Holdco owns 100% of Subco.
The shares of Holdco and Subco have not changed hands since their incorporation five years ago. The assets of Holdco and Subco are stated at their fair market values in the chart, above. The assets and their values have remained constant for the past three years.
Required:
For each of (a), (b), (c), and (d), determine whether the shares of Holdco will be Qualified Small Business Corporation (QSBC) shares at the close of business tomorrow. Assume that all steps necessary to make Holdco a small business corporation at the close of business tomorrow will be taken.

Assets used in an active business* Investment Other in Subco Assets Total $25,000 $15,000 80,000 S100,000 (a) Holdco Subco S60,000 20,000 100,000 (b) Holdco $30,000 S50,000 20,000 $100,000 Subco 95,000 5,000 100,000 (c) Holdco $45,000 $15,000 40.000 S100,000 Subco 70,000 30,000 100,000 (d) Holdco $75,000 $25,000 S100,000 Subco 92,000 8.000 100,000