Chapter 8 (PUC & Wind-ups) Flashcards
What is PUC? Give an example.
PUC stands for Paid-up Capital. It represents the amount of money given to a corporation that must be returned tax-free in the event of a share redemption, cancellation, or acquisition.
For example, if I buy $75 worth of share with after-tax money, the corporation should return that $75 back to me tax-free when the shares are redeemed.
PUC applies to what section of a corporation?
Each class of shares
How does PUC differ from ACB?
PUC is relevant to corporation, while ACB is relevant to specific shareholder.
Does PUC offer advantages to some investors? Why?
Yes. Since PUC used the averaging method across all shares in a class, some investors with an ACB lower than PUC will get a tax advantage (more returned to them if shares redeemed).
What arises when shares are redeemed for a price greater than PUC?
Deemed dividend
When does a capital gain occur?
PUC > ACB
When does a capital loss occur?
PUC < ACB
What must you do when calculating capital gain?
Make POD equal to PUC
Is there a deemed dividend paid out if the redemption amount is less than PUC?
No
What is a corporate wind-up?
Liquidating corporate assets and using the cash to settle liabilities and redeem outstanding shares.
What are the 3 methods of a tax-free return of capital?
- Share redemption
- Dividend (stock/in-kind)
- Cash distribution
What is stated capital equivalent to?
Common shares account on the BS
Who can distribute tax-free capital dividends?
CCPCs
What must be done when a tax-free cash distribution is handed out by a CCPC?
Reduce shareholders’ ACB
What occurs when the reduction of net assets does not equal the increase in PUC?
Deemed dividend in the amount of the difference
