Ontario Barrister and Solicitor Practice Exam

What indicates a capital loss?

1. PUC greater than ACB

2. Redemption proceeds - corporation PUC

3. Stated capital / # of shares paid

4. ACB greater than PUC

The correct answer is: ACB greater than PUC

A prescription for reporting a negative capital profit is using the ACB greater than PUC equation. The addition of PUC represents the proceeds received in excess of the shareholder's purchase price for the shares redeemed, and therefore could not indicate a capital loss. Similarly, the Stated capital / # of shares paid option would not accurately measure the capital loss, as it only represents the issuing corporation's original capitalization and does not consider the individual shareholder's investment. Option A, PUC greater than ACB, would indicate a capital gain rather than a loss. Option B, Redemption proceeds - corporation PUC, would only represent the redemption of shares and not accurately reflect the capital loss. Therefore, the correct indication of a capital loss is when the ACB is greater than the PUC.