Canadian Income
Taxation, 2024-2025, 27e
Bill Buckwold (Test Bank
All Chapters, 100%
Original Verified, A+
Grade) Answers at the end
of each chapter.
Part 1: Chapter 12-23
Part 2: Chapter 1-11
, Part 1: Chapter 12-23
Chapter 12
Student name:__________
1) Which of the following scenarios would be appropriate for a section 85 roll-over?
A) A shareholder of a corporation wishes to transfer their vehicle to their corporation.
The vehicle originally cost $20,000 and has a market value of $12,000.
B) A corporation wishes to convert land owned by the company into a parking lot.
C) A taxpayer wishes to transfer property worth $200,000, with an ACB of $90,000, to
their corporation.
D) A corporation is selling its equipment to another corporation and does not wish to
own shares in the other corporation.
2) Which of the following statements is correct regarding the disposal of shares by a
shareholder?
A) When a shareholder sells shares to other shareholders, the corporation's capital base
increases.
B) The sale of shares to other shareholders is known as a 'buy-back'.
C) The sale of shares back to the corporate treasury is not an allowable transaction.
D) The sale of shares to the corporate treasury may result in a deemed dividend and a
capital gain or capital loss to the shareholder.
3) Andi sold 5000 shares back to ABC Co. for $30,000 during the current fiscal year. Andi
purchased these shares from an arm's-length party three years ago for $15,000 who had
originally purchased the shares from the corporate treasury for $10,000. Which of the
following tax consequences will Andi recognize?
A) A deemed dividend of $15,000 and no capital gain or loss.
B) A deemed dividend of $20,000 and a capital loss of $5,000.
C) A deemed dividend of $20,000 and a capital gain of $10,000.
D) A deemed dividend of $15,000 and a capital gain of $10,000.
4) X Co. transferred a small piece of land to one of its shareholders as a dividend in kind. The
land originally cost $50,000 and had a fair market value of $175,000 at the time of the
transfer. The corporation will realize ________, and the shareholder will realize ________.
A) no tax effect; a dividend of $125,000
B) a dividend of $125,000; no tax effect
C) a capital gain of $125,000; a dividend of $175,000
D) a capital gain of $50,000; a dividend of $125,000
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5) Little Co. is a Canadian controlled private corporation and Large Co. is a public Canadian
corporation. Both corporations have a paid-up capital balance of $25,000. Which of the
following statements is correct, provided the proper legal steps are followed?
A) If Little Co. makes a payment of $25,000 to its shareholders by reducing its paid-up
capital, there will be no tax consequence for the shareholders.
B) If Little Co. makes a payment of $25,000 to its shareholders by reducing its paid-up
capital, only 50% of the payment will be taxable.
C) If Large Co. makes a payment of $25,000 to its shareholders by reducing its paid-up
capital, there will be no tax consequence for the shareholders.
D) If Large Co. makes a payment of $25,000 to its shareholders by reducing its paid-up
capital, only 50% of the payment will be taxable.
6) Marta has operated a proprietorship for three years and now plans to incorporate the
company. All of the assets and liabilities of the proprietorship will be transferred to the
corporation.
Amongst the list of assets being transferred are accounts receivable with a fair market value
of $5,000 and a tax cost of $7,000. If Marta chooses to transfer the receivables using a joint
Section 22 election, which of the follow will apply?
A) The cost of the receivables to the corporation for tax purposes will be $5,000.
B) The corporation will not be allowed to claim a reserve for doubtful accounts or bad
debts against its business income at year-end.
C) Marta will treat the loss as a capital loss.
D) Marta will treat the loss as a business loss.
7) A shareholder of a Canadian corporation is planning to transfer a building to the corporation
and wishes to avoid tax on the transaction. The building originally cost $150,000. It has a
UCC of $85,000 and a fair market value of $225,000. Which of the following will meet the
shareholder's wish?
A) The shareholder can receive non-share consideration of $150,000 and preferred
shares of $85,000.
B) The shareholder can receive non-share consideration of $140,000 and preferred
shares of $10,000.
C) The shareholder can receive non-share consideration of $85,000 and preferred shares
of $140,000.
D) The shareholder can receive non-share consideration of $225,000 and preferred
shares of $0.
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8) There are significant attributes in the tax treatment of shareholder debt and shareholder
equity from the perspective of both a CCPC and its shareholders. Which of the following is
an example of a tax consequence on return on investment of shareholder debt?
A) Interest is typically fully deductible by the corporation
B) There is preferential timing of loss on shareholder debt
C) A shareholder loan is easily returned if there is enough capital in the corporation
D) A capital gain realized by an individual may be eligible for the capital gain deduction
if the CCPC is a QSBC
9) There are significant attributes in the tax treatment of shareholder debt and shareholder
equity from the perspective of both a CCPC and its shareholders. Which of the following is
an example of a tax consequence on return of investment of shareholder equity?
A) Interest is taxed in the hands of the shareholder at the marginal tax rate for regular
income.
B) Sale of shares back to the corporation may result in a deemed dividend and capital
gain or capital loss.
C) Dividends received by a CCPC from taxable Canadian corporations are deducted
from net income for tax purposes to reduce the corporation's taxable income.
D) A loss on the investment is typically a capital loss which may potentially qualify as
an ABIL.
10) There are significant attributes in the tax treatment of shareholder debt and shareholder
equity from the perspective of both a CCPC and its shareholders. Which of the following is
an example of a tax consequence from the loss of investment of shareholder debt?
A) Interest is typically fully deductible by the corporation.
B) Sale of shares to another shareholder may create a capital gain or loss.
C) The loss on shareholder debt typically has preferential timing in comparison to the
loss on shareholder equity.
D) The loss may be recognized when the shares are sold, or the corporation is insolvent
or bankrupt.
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