Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
XXXXXXXXXX
Attention: XXXXXXXXXX
Dear Sirs:
RE: Meaning of the Phrase "Immediately after the Disposition"
This is in reply to your letter dated December 7, 1993 wherein you requested our comments regarding the meaning of the phrase "immediately after the disposition" for the purposes of subsections 85(4) and (5.1) of the Income Tax Act (Canada) (the "Act") in the situation where a taxpayer (the "Transferor") transfers property to a corporation (the "Transferee") that is controlled by the Transferor and shortly thereafter the Transferor disposes of its shares in the Transferee. If the Transferor had intended to dispose of the shares in the Transferee from the commencement of the series of transactions, you are of the view that the provisions of subsection 85(4) of the Act should not apply in the case where the Transferor realizes a capital loss on the transfer of capital property or eligible capital property to the Transferee and the provisions of subsection 85(5.1) of the Act should not apply in the case where the Transferor realizes a terminal loss on the transfer of depreciable property of a prescribed class to the Transferee. You believe that the phrase "immediately after the disposition", properly interpreted and applied, does not mean "instantaneously after the disposition" or the "moment after the disposition" but rather indicates that there will not be control of the transferee by the Transferor within a relatively short time after the disposition which is consistent with the object and spirit of the legislation because the Transferor has, in fact, disposed of the property indirectly to an arm's length purchaser through the disposition of the shares of the Transferee.
Comments
It is our view that the phrase "immediately after the disposition" must be given its ordinary meaning for the purposes of subsections 85(4) and (5.1) of the Act. However, it seems to us that the interpretation suggested by you would result in the term "immediately after the disposition " being equivalent to "at the end of the series of transactions or events". Since the expression "series of transactions or events" has been used in numerous other provisions found in the Act, we believe that Parliament could not have intended that the phrase "immediately after the disposition" be given the interpretation which you have suggested.
We regret that our response could not be more favourable.
Yours truly,
for DirectorReorganizations and Foreign DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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