2 June 1983 Income Tax Severed Letter 7-2320 - [830602]

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.

June 2, 1983

HEAD OFFICE Corporate Rulings Directorate J.W. Shaw 593-6937

Ref: 7-2320

RE: XXXX

This is in reply to your memorandum of January 6, 1983 regarding three matters with respect to which reassessments of the above-captioned taxpayers are proposed by you.

The items, together with our comments, are:

1.

XXXX

As you suggest, the questio raised turns on the trust's shares, and, more specifically, whether XXXX controls the voting rights of those shares. You are aware of the decision in Lusita Holdings Ltd. (82 DTC 6297), and have asked whether that case has been considered a precedent, and, if so, whether the decision applies to the facts at hand.

Lusita was considered to be a resolution of a question of fact, and not of law. As such, its application would, at best, be to those instances in which the facts are substantially the same. While, prior to the Lusita decision, our response would have been the same as the answer you received from the Hot Line, we do not consider the facts in the situation at hand to be significantly different from those in Lusita.

2. Whether the shareholder loan accounts represent a series of loans and repayments is, of course, a question of fact with respect to which your office, being in possession of clearer information on the matter is in the better position to establish. However, our understanding of such arrangements is that the repayments are essentially temporary, which, apart from portions of the amounts relating to the "farm" does not seem to be the case in the situation at hand, although we must admit that the details submitted, particularly with respect to the purchase of the XXXX are rather sketchy.

We have not commented on the effective dates of application of the assessing practice set out in your memorandum, as the taxpayer's representative seems in agreement with your comments.

3. Exchange of shares

XXXX

The taxpayer's representative, of course, disagrees with both the valuation of the shares and the technical basis for the assessment. While acknowledging that the shares should have been valued at a substantially greater amount XXXX has been, proposed as a basis of settlement of the matter - the taxpayer's representative maintains that since the provisions of section 86 set out deemed proceeds with respect to the shares, and, since the transaction was completed before the enactment of subsection 86(2) as it now reads, and which would otherwise have application, the provisions which you suggest increase the proceeds cannot have application.

While the taxpayer's argument seems correct, insofar as the application of paragraph 69(1)(b) is concerned in that preamble contained in subsection 69(1) reads "except as expressly otherwise provided in this Act" and the provisions of section 86 as it then read rather expressly set out the basis of computation of the proceeds, we should still have a base for an assessment of either the sons, the father, or both. Paragraph 245(2)(a) could be applied to include the benefit in the sons' income, and subsection 56(2), which operates in our view, independently of the provisions of section 86, could be applied to include the benefit in the father's income.

Chief Finance, Insurance & Leasing Section Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch