Ontario Solicitor Bar Practice Exam 2026 - Free Solicitor Bar Practice Questions and Study Guide

The formula for calculating a deemed dividend is correctly identified as redemption proceeds minus the corporation's Paid-Up Capital (PUC). This reflects how the distribution of a corporation's assets, when a shareholder redeems shares, is treated for tax purposes.

When a shareholder redeems shares, the payment received (redemption proceeds) can exceed the corporation's PUC. The portion that exceeds the PUC is considered a deemed dividend. This is significant for determining the tax implications for both the shareholder and the corporation.

In this context, the Paid-Up Capital represents a shareholder’s equity that is considered to be returned before any amount is classified as a dividend. Thus, only the excess over the PUC is taxable as a deemed dividend. This taxation principle ensures that corporate distributions are appropriately handled under tax law, which helps maintain fairness in taxation for shareholders.

To summarize, the correct calculation method involves subtracting the corporation's PUC from the redemption proceeds to accurately identify the deemed dividend for tax purposes.