10 July 2002 External T.I. 2002-0147055 - Application of GAAR - Clarification

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Potential application of GAAR - Situation similar to 1995 APFF Question 22.

Position: Question of fact and law.

Reasons: Need all facts.

XXXXXXXXXX 2002-014705

July 10, 2002

Dear XXXXXXXXXX:

Re: Clarification of Our Position in Question 22 of 1995 APFF

This is in response to your letter dated June 6, 2002 that was sent to us by facsimile on June 13, 2002. In your letter, you requested clarification of our comments regarding the potential application of the general anti-avoidance rule ("GAAR") found in section 245 of the Income Tax Act ("the Act") that appeared in technical interpretation #1999-0008945 as they may apply to a situation described in your letter. Specifically, you asked whether GAAR would be applied where an individual undertook (or may undertake) similar transactions to those described in the aforementioned technical interpretation but will continue to be a shareholder of the corporation.

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 70-6R4 (IC-70-6R4) dated January 29, 2001. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's ("CCRA") views must be made to your local Tax Services Office. As a result we are unable to confirm your views however we offer the following general comments.

In that above-noted technical interpretation, which dealt with a fact situation described in Question 22 of the 1995 APFF conference, we indicated that the application of GAAR would have to be considered if Mr. X only sold a portion of his shares of Opco to Newco. As we discussed (Cooke/XXXXXXXXXX), the general comment concerning the consideration of the application of GAAR was based on a concern that if Mr. X did not sell all his shares of Opco to Newco the transactions may have been undertaken by the parties to convert an amount that would otherwise been paid by Opco and received by Mr. X as a taxable dividend into a capital gain. However, as we discussed, the application of GAAR to any particular fact situation, remains a mixed question of fact and law that can only be determined once all the relevant facts and other information are provided to the CCRA in the manner described above.

Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R4.

Yours truly,

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