During 2013, Mary Todd transferred land to Sandy Development Ltd., a newly created corporation. The land was acquired a few years ago in order to build an income property on it. Mary is the sole shareholder of Sandy Development Ltd. The FMV of the land at the time of the transfer was $500,000 and its ACB was $120,000. Mary has a net capital loss carryforward of $25,000 (based on a 50% inclusion rate).

Mary received the following consideration in the transfer:

Note payable to Mary $ 120,000
3,500 Class A preferred shares issued for $100 each, having a par value of $100, and retractable at $100 350,000
3,000 common shares issued for $10 each 30,000 $500,000
No Class A preferred or common shares were issued prior to the transfer and no other shares have been issued since.

Mary comes to consult you on the tax consequences of the transfer. She was told that it was possible to make an election for tax purposes so that there would be no tax consequences on the transfer. Mary gives you all the information with no verification on your part.

Required

(20 marks)
In a letter addressed to Mary, give her your opinion on how the transfer should be carried out under subsection 85(1) so that she will have no immediate tax consequences and will benefit from all the available tax attributes. You should also tell her the PUC and ACB of the Class A preferred shares and the common shares that she has received and deal with the tax consequences on the eventual redemption of the 3,500 Class A preferred shares.

(2 marks will be awarded for presentation, spelling, grammar, and the professionalism of your written communication.)

(3 marks)
Mary informs you that in 2015, she will make a capital contribution of $100,000 to Sandy Development Ltd. to enable it to purchase and develop other pieces of land. The banker for the corporation requires that the