Scranton Inc. is a CCPC with a nil GRIP balance. It has 100,000 shares outstanding, all of which were issued at a price of $8.00 per share. Nellie Ward owns 10,000 of these shares which she acquired at a cost of $7.00 per share. During 2020, the company redeems Nellie's shares at a price of $10.00 per share. Which of the following amounts will be included in Nellie's Net Income For Tax Purposes as a result of the redemption?

Question

Quizplus · Accepted Answer

The amount included in Nellie's Net Income For Tax Purposes is calculated as the redemption amount minus the adjusted cost base (ACB) of the shares. Nellie's shares were redeemed for $10.00 each, totaling $100,000 (10,000 shares * $10.00). The ACB of her shares is $70,000 (10,000 shares * $7.00). The difference, $30,000, is the capital gain. Since only 50% of capital gains are taxable in Canada, the amount included in Nellie's Net Income For Tax Purposes is $15,000. However, since the question implies looking for a mistake in calculation, and none of the options correctly reflects the capital gains inclusion, the closest incorrect option provided is D) $28,000, which does not align with the standard capital gains calculation but might be considered in a different context not fully explained in the question. This seems to be a trick question or contains a mistake as none of the options correctly reflect the standard calculation for inclusion in net income for tax purposes based on the given scenario.