The Browns have owned and operated The Tile Company Inc. for thirty years and are ready to retire. Their long-time employee wishes to buy the company but does not have the funds available to do so at this time. Which section of the Income Tax Act would
Allow the Browns to transfer the value of their common shares to preferred shares on a tax-deferred basis while issuing new common shares to the employee for a nominal
Value?
A) Section 88
B) Section 87
C) This transaction is not within the spirit of the Income Tax Act and would be subject to GAAR.
D) Section 86

Question

Quizplus · Accepted Answer

Section 86 of the Income Tax Act allows for a tax-deferred reorganization of share capital, enabling the Browns to exchange their common shares for preferred shares and issue new common shares to the employee.

The Browns Have Owned and Operated the Tile Company Inc