According to the case presented in this case scenario, there is avoidance of legal requirement to have redemption. Clara has presented her current year’s tax returns and it seems there are some unusually abnormally in her tax return. She reported a large capital gain in her stock redemption in 2011. This was due to an irregularity made during the redemption process. Clara did not avail herself during the family during the redemption process. This affected the whole process of exchange treatment, where she was supposed to avail herself for a completion of the termination. The analysis of the returns reveals that the termination had ended Clara’s direct stock ownership in the corporation (Lala 12).
For one to qualify for exchange treatment or sale, a stock redemption has to generate considerable reduction the stocks held by an individual and the stockholder’s tenure in the corporation. In a case where there is no termination of ownership, the redemption profits are taxed as dividend income. It is at this point in time when it was realized that Clara, was still getting way too much dividends from the corporation she had no interest (Lala 16). This was further investigated and it was revealed that Clara never signed a notification agreement by the family that would have notified them of what was happening in the corporation stocks.
According to section 302, on distribution in redemption of stocks, this talks about the termination of the stockholder’s interest. It state that the law shall be applied if the redemption is complete and the stock is complete as owned by stockholder. While in Clara’s case she had terminated the redemption, though taking dividends of the stocks in secrecy from the corporation, which has resulted to Clara’s accepting the redemption that has appeared in her annual returns. In accordance to the law this redemption is not legal and requires attribution waiver agreement for the redemption dividends to be settled.
There is still room for Clara to secure an attribution waiver agreement. There are usually consequences that follow in case there is redemption where one is not supposed to redeem. These include dividend treatment that involves tax rate application on the redemption and signing of a redemption waiver agreement.
Work Cited
Lala, Forest. Redemption and Reservation of Provincial Legislation." Ottawa: Department of Justice, 2011. Print.
