Chapter15 - Co r porate Dist ributio n Chapter 15 By James...

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Unformatted text preview: Co r porate Dist ributio n Chapter 15 By James B. MacNeill Corp orate Dist ributions Partitioning of Equity of Corporation Capital Stock - Paid-Up Capital Retained Earnings - Capital Dividend Account – Undistributed Surplus Pa id -Up Ca pit al (PUC) Defined in Section 89 PUC Can Always be Returned, Tax Free, to the Shareholder Corporate Perspective The Shareholder Still Uses ACB to Determine a Gain Legal Ve rsio n Most Corporation Acts (CBCA, OBCA) Use Stated Capitals Stated Capital Can be Different from PUC Total PUC is Averaged Over the Class PUC for Each Class is Calculated Separately PUC vs. ACB Pa id-up Ca l pita ( PUC) Adjus d Cos Ba e te t s ( ACB) Ca lcula d a Corpora Le e te t te v l Ca lcula d a S re te t ha holde ’ Le e rs v l Ba e on Am sd ount Contribute Ba e on Am d sd ount Pa for S re id ha s to Corp tion ora Av ra e Ov r Cla s e gd e s Uniq to Ea S re ue ch ha holde r Ca Be Withdra n Ta Fre n w x e Cons re on Dis os ide d p ition Capital Div id end Ac count Part of Concept of Integration Allows for Tax-Free Distribution of Tax-Free Amounts Ac count Co mponents Net Capital Gains Capital Dividends Received from Other Corporation CEC Amounts Realized Life Insurance Proceeds -- Net of Cost Base of Policy Capital Dividends Paid De fin itio n Found at Section 89 For Private Corporations Only Running Balance of its Components See Examples 812 St ock Divi dends Value of Stock Dividend is Equal to Increase in PUC Same Amount is Considered a Cost to the Shareholder Divid ends in Kin d Property can be Distributed to Shareholders Property Deemed to be Disposed of at FMV Shareholders Acquire Property at FMV Total Value of Distribution is the Quantity of the Dividend Deemed Di vi de nds (Found at Secti on 84) Eq uity S ource Dis tribution PUC Ta Free x CDA Ta Free if Election Ma x de Reta ined Ea rnings Ta ble Div xa idend Increase in PUC No Corresponding Increase in Assets Deemed Dividend Added to ACB of Shares [Subsection 53(1)(b)] Exceptions – – – Stock Dividends Corresponding Increase in Assets Corresponding Decrease in PUC of Another Class of Shares – Contributed Surplus Created from a TaxFree Rollover Redemption o f Sh ares Found at Section 84(3) Excess of Proceeds Over PUC Treated as a Dividend Reductio n i n PU C Treated as a Return of Capital to the Extent of PUC Reduces ACB of Shares Capital Div id end Found at Subsection 83(2) Elective Procedure Part III Penalty of 60% for Excess Elections May Treat Excess as a Taxable Dividend Subsection 184(3) Win ding Up o f a CC PC Distributions of Net Assets Treated as a Dividend Deemed Di vi den d on Wi ndi ng Up Found at Subsection 84(2) Distribution Deemed to be a Dividend Partitioning Under Subsection 88(2)(b) and Ordering as Follows: – Capital Dividend Account (CDA) – Pre-1972 CSOH – Taxable Sale of a Business Assets vs. Shares See Pages 820-828 for Example Pur chaser C onsider ations As set Purc hase Step-up in Cost Base of Assets Liabilities Not Assumed Share Purchase Possible Lower Purchase Price Inherit Tax Attributes Unrecorded Liabilities RDTOH CDA Loss Carry Forwards Vendors’ Consi derat ions Share P urchase $500,000 Capital Gains Exemption Avoid Double Taxation Ass et Purchase Recapture and Capital Gains Distributions Costs on a Winding Up RDTOH CDA Two Layers of Taxation Co r porate Dist ributio n Chapter 15 By James B. MacNeill ...
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