It is the end of 20x8, and ABC Inc. (a CCPC) is for sale. Jane, the sole shareholder would like to know if the company is currently a qualified small business corporation. Jane has provided you with the following information:
All of the business activities of ABC Inc. have taken place in Canada.
The following amounts represent fair market values of the company's assets:
*ABC owns 35% of the shares of XYZ, which is a small business corporation with 100% of the fair market value of its assets consistently used in active business in Canada.
Additional information:
The shares have not changed hands since the company began operations four years ago.
The land was acquired at the beginning of 20x8 with a five-year mortgage.
All of the other asset values have remained constant over the past three years.
Required:
Determine the following for ABC Inc.:

Question

It is the end of 20x8, and ABC Inc. (a CCPC) is for sale. Jane, the sole shareholder would like to know if the company is currently a qualified small business corporation. Jane has provided you with the following information:
All of the business activities of ABC Inc. have taken place in Canada.
The following amounts represent fair market values of the company's assets:
  *ABC owns 35% of the shares of XYZ, which is a small business corporation with 100% of the fair market value of its assets consistently used in active business in Canada.
Additional information:
The shares have not changed hands since the company began operations four years ago.
The land was acquired at the beginning of 20x8 with a five-year mortgage.
All of the other asset values have remained constant over the past three years.
Required:
Determine the following for ABC Inc.:

Quizplus · Accepted Answer

The Answer is A) At the point of sale, >91% of ABC's assets were a combination of assets used in active business and shares in a connected small business corporation, thus meeting the 90% FMV of assets test required for a 'small business corporation'.

A) At the point of sale, >91% of ABC's assets were a combination of assets used in active business and shares in a connected small business corporation, thus meeting the 90% FMV of assets test required for a 'small business corporation'. B) During the previous 24 months (prior to the purchase of the land), >87% of ABC's assets were a combination of assets used in active business and shares in a connected corporation. (While the active assets in ABC alone do not meet the 50% test, the combination of the active assets and the shares in XYZ Ltd. meets the 50% test since XYZ Ltd. has more than 90% of the fair market value of its assets used in active business in Canada.) ABC is a qualified small business corporation (QSBC) since: a) it is a small business corporation at the time of sale, b) the shares have not been held by an unrelated person during the past 24 months, and c) ABC meets the 24 month > 50% FMV of assets test since XYZ (which is required to meet the >50% test) meets the > 90% FMV test.

B) During the previous 24 months (prior to the purchase of the land), >87% of ABC's assets were a combination of assets used in active business and shares in a connected corporation. (While the active assets in ABC alone do not meet the 50% test, the combination of the active assets and the shares in XYZ Ltd. meets the 50% test since XYZ Ltd. has more than 90% of the fair market value of its assets used in active business in Canada.)

ABC is a qualified small business corporation (QSBC) since: a) it is a small business corporation at the time of sale, b) the shares have not been held by an unrelated person during the past 24 months, and c) ABC meets the 24 month > 50% FMV of assets test since XYZ (which is required to meet the >50% test) meets the > 90% FMV test.

It Is the End of 20x8, and ABC Inc