Hold Co. is a Canadian controlled private corporation that acquired 100% of the shares of Small Co. in 20X5. Hold Co. paid $50,000 for the shares. Big Co., an arm's length corporation, is now interested in purchasing Hold Co.'s investment in Small Co. Small Co.'s shares are currently worth $500,000 and the retained earnings of the company are $200,000. In order to reduce the fair market value of the shares, Small Co. will pay a dividend of $450,000 to Hold Co., and then
sell the shares for $50,000.
Required:
Presuming Subsection 55(2) applies, how much is the capital gain that Hold Co. will have to realize on this sale? (Ignore Part IV tax.)

Question

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The Answer of Hold Co. is a Canadian controlled private corporation that acquired 100% of the shares of Small Co. in 20X5. Hold Co. paid $50,000 for the shares. Big Co., an arm's length corporation, is now interested in purchasing Hold Co.'s investment in Small Co. Small Co.'s shares are currently worth $500,000 and the retained earnings of the company are $200,000. In order to reduce the fair market value of the shares, Small Co. will pay a dividend of $450,000 to Hold Co., and then
sell the shares for $50,000.
Required:
Presuming Subsection 55(2) applies, how much is the capital gain that Hold Co. will have to realize on this sale? (Ignore Part IV tax.)

Hold Co Is a Canadian Controlled Private Corporation That Acquired 100