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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: requested confirmation that Q32(b) reply at 1992 Round Table would apply. Determined that only general comments should be provided since the letter referred to a treaty exemption so our position may not be intended to apply in cross-border situations.
April 5, 2000
Re: Amalgamations and shareholder's benefits
We are writing in response to your letter of December 10, 1999 wherein you requested our comments on the application of subsection 15(1) in a certain situation. All statutory references contained in this letter are to the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended to the date hereof (the "Act").
1. A Co. owns all the shares of B Co.
2. B Co. owns all the shares of C Co. which are worth $100.
3. A Co. owns all the shares of D Co. which are worth $100.
4. C Co. and D Co. amalgamate to form Amalco.
5. On the amalgamation, B Co. receives all the common shares of Amalco which are worth $199 and A Co. receives one preferred share of Amalco which is worth $1 and which is redeemed following the amalgamation.
6. The rules in paragraphs 87(4)(c) to (e) will apply to A Co.'s disposition of the D Co. shares since the fair market value of the "old shares" of $100 exceeds the fair market value of the "new shares" of $1 and it is assumed that the "gift portion" was intended to benefit B Co.
"Despite the fact that A Co. would not have a rollover available, would B Co. be assessed with a shareholder benefit under subsection 15(1) since it received $199 worth of shares in exchange for $100. If not, would it make a difference if the rules in 87(4)(c) did not result in a taxable capital gain to A Co. since A Co. has sufficient adjusted cost base in the D Co. shares or because the gain is treaty exempt."
Whether subsection 15(1) or any other benefit provision would apply in a situation such as the one you described is a determination which could only be made after a review of all the circumstances of the transaction, particularly in a cross-border context.
These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular IC-70-6R3 dated December 30, 1996 issued by Revenue Canada and are not considered binding on the Canada Customs and Revenue Agency.
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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