Consider the following asset mix for PPM Manufacturing Limited and HOL Ltd.
PPM Limited:
Assets used in an active business carried on in Canada 25%
Investment in shares of HOL Ltd. 30%
Other assets 45%
100%
HOL Limited: (owned 100% by PPM Manufacturing Limited)
Assets used in an active business carried on in Canada 95%
Other assets 5%
100%
Required:
Does PPM Limited satisfy the "basic asset test" or the "modified asset test" (i.e., the third test) in the definition of "qualified small business corporation shares"? Support your conclusion with the facts given above. Assume that the proportions of the fair market values of assets shown have remained constant for at least the preceding 24 months. Do not consider the SBC or Holding Period Tests in the QSBCS definition.