Principal Issues: Shareholders of an operating corporation ("Opco") would sell their shares in Opco after it transfers all of its assets to a newly created subsidiary ("Subco"). Whether subsection 84(2) or sections 84.1 or 245 would apply in the given fact situation.
Position: General comments provided. Where none of Opco's funds or property are distributed or otherwise appropriated in any manner whatever to or for the benefit of the selling shareholders of Opco in the Given Situation, subsection 84(2) of the ITA would not be applicable. This could be the case where the selling shareholders and the purchaser are dealing at arm's length, the selling shareholders would receive a cash amount from the purchaser's own funds in return for their Opco shares, and Opco's assets would continue to be used in an active business by Opco or by another entity within the purchaser's corporate group. In such a situation, subsection 245(2) would not normally apply to the selling shareholders to redetermine the tax consequences arising from the sale of their shares. Where the proposed transaction is a business transaction and is supported by bona fide business purposes (other than obtaining a tax benefit), where a purchaser is interested in the assets of an unrelated person (the "Target Corporation"), and where the purchaser and the shareholders of the Target Corporation are unrelated persons with distinct and different interests, the sole fact that the parties have finally agreed that the purchaser would acquire the Target Corporation's assets by purchasing shares of its capital stock would not be sufficient, in and by itself, to consider that the purchaser and the vendors are not dealing at arm's length, with respect to the disposition of the shares of the capital stock of the Target Corporation.
Reasons: Wording of the Act.