19 March 2003 External T.I. 2003-0000995 - Application of Subparagraph 84.1(2)(a.1)(ii)

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: Income tax consequences of certain transactions including the application of subparagraph 84.1(2)(a.1)(ii).

Position: Limited comments.

Reasons: This request should be re-submitted as a ruling request or directed to the TSO.

XXXXXXXXXX 2003-000099
Michael Cooke
March 19, 2003

Dear XXXXXXXXXX:

Re: Application of Subparagraph 84.1(2)(a.1)(ii) et. al.

We are writing in reply to your letter of January 27, 2003, in which you asked for our opinion concerning the application of the above noted provision of the Income Tax Act (the "Act") as well as certain other income tax implications to the situation set out in your letter.

As mentioned to you, we are unable to respond to your request for a technical interpretation on all the income tax consequences of the series transactions described in your letter. This is because your request appears to relate to proposed transactions or a completed transactions and we do not have all the facts and other relevant information that may be required to make such a determination. 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 that is submitted in accordance with the guidelines set out in Information Circular 70-6R5 ("IC-70-6R5") dated May 29, 2002. However, if the situation described in your letter relates to a completed transaction, any request for the Canada Customs and Revenue Agency's views should be made to your local Tax Services Office.

Notwithstanding the above, we are prepared to provide the following comments concerning the general application of subparagraph 84.1(2)(a.1)(ii). Subparagraph 84.1(2)(a.1)(ii) will apply to reduce the adjusted cost base of any share (or a substituted share) owned by a taxpayer for the purposes of section 84.1 by the amount of any capital gain realized by the taxpayer or any non-arm's length individual after 1984 (as determined under paragraph 40(1)(a)(i)) in respect of a previous disposition of the share (or a substituted share) unless the taxpayer can establish that a "lesser amount" should otherwise be deducted. This "lesser amount" is the amount, if any, of any capital gains exemption claimed under section 110.6 on such a previous disposition.

The above comments represent our general views with respect to the subject matter of your letter and are provided in accordance with paragraph 22 of Information Circular 70-6R5.

Yours truly,

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