Jack Grey is the sole shareholder of Grey's Garden tools.He owns one class of common shares which have a value of $200,000.Jack is approaching retirement age and would like his two key employees to take over his company some day.At this point in time,the employees do not have enough excess cash to buy Jack's shares.Which of the following statements is true with regard to a corporate reorganization that would allow the employees to take over the ownership?
A) Section 86 of the Income Tax Act would allow Jack to restructure the ownership of his company and would result in an immediate tax consequence for himself.
B) Section 86 of the Income Tax Act would allow Jack to restructure the ownership of his company and would result in an immediate tax consequence for his employees.
C) Section 86 of the Income Tax Act would allow Jack to restructure the ownership of his company and would result in the conversion of his common shares to preferred shares.
D) Section 86 of the Income Tax Act would allow Jack to restructure the ownership of his company and would result in a continual growth of preferred shares.

Question

Quizplus · Accepted Answer

Section 86 of the Income Tax Act allows for a tax-deferred reorganization where common shares can be converted into preferred shares, facilitating a transfer of ownership without immediate tax consequences.

Jack Grey Is the Sole Shareholder of Grey's Garden Tools