Ontario Solicitor Bar Practice Exam

When a shareholder redeems shares, the income tax implications will depend on the adjusted cost base (ACB) of the shares as well as the proceeds from the redemption. In this scenario, redeeming 25 shares at $10 per share results in total proceeds of $250.

The income tax impact can involve the possibility of a deemed dividend and capital gains or losses. If the ACB of the shares is lower than the proceeds from redemption, the difference can result in a taxable capital gain. However, if the ACB is higher than the redemption proceeds, it creates a capital loss.

Considering the correct answer, if it states that there is a deemed dividend of $150 with a capital loss of $25, it can be inferred that the ACB of all 25 redeemed shares is $200. This means that the shareholder received $250 from the redemption but only has an ACB of $200, leading to a deemed dividend since the redemption amount exceeds the ACB. The $250 proceeds minus the $200 ACB results in a $50 taxable capital gain, not a capital loss.

Thus, this answer effectively captures the impact of redeeming shares where a portion of the proceeds is treated as deemed dividend income, especially if the