UNIVERSITY OF TORONTO FACULTY OF LAW Y R A R B W LI I LA II KIN I I Supplementary Materials S AI LI A OR I BI on the Taxation of Partnerships and Corporations Volume III (Taxation of Shareholders) David G. Duff Faculty of Law University of Toronto 2008 BORA LASKIN LAW LIBRARY MAR - 7 2008 FACULTY OF LAW j UNIVERSITY OF TORONTO Supplementary Materials on the Taxation of Partnerships and Corporations Volume III (Taxation of Shareholders) David G. Duff Faculty of Law University of Toronto 2008 Digitized by the Internet Archive in 2018 with funding from University of Toronto https://archive.org/details/canadiantaxation03duff Table of Contents Chapter 8 Sale of Shares 346 1. Introduction 34^ 2. Characterization 345 3. Computation 354 (1) Allowable Business Investment Loss 355 (2) Capital Gains Deduction 365 (a) Qualified Small Business Corporation Shares 366 (b) Computation 376 (c) Anti-Avoidance Rules 384 Chapter 9 Corporate Distributions 391 1. Share Capital 391 2. Dividends, Stock Dividends, and Stock Splits 393 3. Return of Capital and Deemed Dividends 395 (1) Increase in Paid-up Capital 395 (2) Distribution on Winding-up, Discontinuance or Reorganization 406 (3) Redemption, Acquisition or Cancellation of Shares 413 (4) Reduction in Paid-up Capital 418 4. Tax on Corporate Distributions 420 5. Non-arm’s Length Disposition of Shares 428 6. Surplus-Stripping and the General Anti-Avoidance Rule 448 Chapter 10 Shareholder Benefits and Loans 493 1. Shareholder Benefits 493 (1) Introduction 493 (2) Capacity 499 (3) Conferral 505 (4) Benefit 512 (a) Exchange of Property 512 (b) Improvement to Shareholder’s Property 517 (c) Use of Corporate Property 520 (d) Payment of Shareholder’s Legal Obligations 524 (5) Exceptions 527 (a) Introduction 527 (b) Stock Dividends 529 (c) Rights to Buy Additional Common Shares 536 1 2. Shareholder Loans 539 (1) Introduction 539 (2) Application 539 (3) Exceptions 541 (4) Interest-Free or Low-Interest Loans 545 Chapter 11 Indirect Benefits 550 1. Benefit Conferred on a Person 550 2. Indirect Payments 563 ii