Eric Lehnserr owns 100 percent of Magnus Products Ltd. The shares were originally issued in 1982 for $20,000. In 1986, they were acquired by Eric’s…

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Eric Lehnserr owns 100 percent of Magnus Products Ltd. The shares were originally issued in 1982 for $20,000. In 1986, they were acquired by Eric’s father for $25,000. In 2002, Eric’s father died and left the shares to Eric. At that time, they were deemed to have been disposed of for $100,000. On the terminal return for Eric’s father, a capital gain of $75,000 was reported, and tax was paid on the taxable capital gain of $37,500. Eric wishes to transfer the shares, now valued at $250,000, to a holding corporation owned by himself, electing under Section 85(1) of the Income Tax Act. Magnus Products Ltd. has never paid dividends of any kind.

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