5 July 2000 External T.I. 2000-0013275 - Capital dividend account

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: Non-arm's length transfer of an eligible capital property by an individual to a corporation followed by a sale to an arm's length person. Is the corporation's CDA reduced by paragraph 20(1)(b) deductions claimed by individual.

Position: No but consideration of the application of subsection 69(11) is required.

Reasons: The law.

XXXXXXXXXX 							2000-001327

Attention: XXXXXXXXXX

July 5, 2000

Dear Sir\Madam:

Re: Capital Dividend Account and sale of Eligible Capital Property

This is in reply to your letter dated February 29, 2000, wherein you requested our views on the computation of a corporation's capital dividend account as that term is defined in subsection 89(1) of the Income Tax Act (the "Act").

In your letter you describe a situation where an individual transferred an eligible capital property, as that term is defined in subsection 248(1) of the Act, to a corporation owned by that individual. The fair market value of the eligible capital property at the time of the transfer exceeded the individual's cost amount, as that term is defined in subsection 248(1) of the Act. The transfer took place using the provisions of section 85 such that the elected amount equaled the individual's cost amount immediately before the transfer. You also advise that the individual owned no other eligible capital property and shortly after the transfer the eligible capital property was sold by the corporation to an arm's length person for its fair market value.

You ask that we confirm your conclusion that the amount that is added to the corporation's capital dividend account under paragraph (c) of that definition when it sells the eligible capital property is not reduced by any paragraph 20(1)(b) deductions claimed by the individual.

Your request appears to relate to either a proposed transaction or a completed transaction. Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R3 (IC-70-6R3) dated December 30, 1996. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's views must be made to your local Tax Services Office. Notwithstanding the above we can offer the following comments.

We agree with your conclusion that the corporation's capital dividend account would not be reduced by any paragraph 20(1)(b) deductions previously claimed by the individual.

Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R3.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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