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Taxation

Duncan owned common shares in an operating company, DUNCAN Inc. These shares are qualifying small business corporation shares. On incorporation, in 2005, the shares were issued by DUNCAN Inc. to Duncan for $1,000 in cash. Duncan has worked full-time managing the business since incorporation. At the present time, the shares are valued at $65,000. Duncan was advised to crystallize $50,000 of his capital gains exemption. A holding corporation, Duncanholdco Ltd., was incorporated. He transferred his common shares in DUNCAN Inc. to Duncanholdco Ltd., electing at $51,000 under subsection 85(1). As consideration, Duncan received from Duncanholdco Ltd. a note for $51,000 and common shares valued at $14,000.

Required:

A. How would Duncan file his tax return after the execution of the plan?

B. What are the situations can be identified immediately after the execution of the plan?

C. What are the tax consequences to Duncan of the transfer of the DUNCAN Inc. common shares to Duncanholdco Ltd.

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