CRA rejects a submission to construe Descarries narrowly

In 2015-0610711C6, CRA indicated that as a result of Descarries, it would no longer issue rulings in which an individual can in effect use shares (e.g., preferred shares) whose ACB was stepped up using the capital gains deduction (by redeeming those shares to create a deemed dividend and a capital loss) to offset or reduce a capital gain on a disposition of his or her common shares. CRA has now rejected a submission that 2015-0610711C6 read the purpose of s. 84.1 too broadly and that its purpose is only “to prevent persons from monetizing their lifetime CGD outside the context of an actual sales transaction occurring on a market basis” - so that s. 84.1 was not abused if, as in the reversed ruling, all that was going on was that “a taxpayer who, with a view to retiring, embarked on a process of business succession with a family member similar to one that could be undertaken with an arm's length third party.”

CRA added that “we understand your concerns about the application of section 84.1 in the context of an intergenerational transfer of a family business between a parent and children,” but that was a policy question for Finance.

Neal Armstrong. Summary of 2 May 2016 External T.I. 2016-0633351E5 Tr under s. 84.1(1).