31 March 1993 Income Tax Severed Letter 3M05210-60 - APFF 1992: Question 60—Price readjustment clause and section 246

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.

                     TRANSLATION FROM FRENCH

ASSOCIATION DE PLANIFICATION FISCALE ET FINANCIFERE

                   REVENUE CANADA ROUND TABLE

1992 CONFERENCEASSOCIATION DE PLANIFICATION FISCALE ET FINANCIFERE
                   REVENUE CANADA ROUND TABLE
                          October 1992

Question 60

Price readjustment clause and section 246

On a reorganization involving a benefit to a related person, as provided for in subsections 51(2), 86(2) and paragraph 85(1)(e.2) of the Act, a taxpayer included a price adjustment clause pursuant to Interpretation Bulletin IT-169 of August 6, 1974. What is the Department's position when there is a dispute about the valuation of the property and the taxpayer refuses to use the price adjustment clause to neutralize the tax impact?

     -    Will the Department argue that the taxpayer wanted or
          would like to confer a benefit on a person to whom he
          is related as stated in the Act?

     -    Would the Department tax a benefit in the hands of the
          related person under subsection 246(1) of the Act?

Department of National Revenue response

Whether a taxpayer would like to confer a benefit on a related person is a question of fact that can be determined only after consideration of all the relevant facts in the situation. In general, the Department considers that a taxpayer would not want to confer a benefit on such a person insofar as the facts show that the parties really intended to transfer the property at its fair market value and that their efforts to establish that value are based on a fair and reasonable method. Although the mere refusal of a taxpayer to use a price readjustment clause does not allow the conclusion to be drawn that the taxpayer would like to confer a benefit on a related person, this could indicate such a situation.

The related person could be required to include in the calculation of his income or taxable income the value of the benefit conferred on him to the extent that it is not elsewhere included in the calculation of the income or taxable income earned in Canada of that related person under Part I, and to the extent that it would be included if it was a payment that the taxpayer had made directly to the related person under subsection 246(1).