15 March 1990 Ministerial Correspondence 74674 F - Publication of Advance Income Tax Ruling

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.

Subject: Publication of Advance Income Tax Ruling

This is in response to your memorandum of January 29, 1990 in which you requested that we review your revised version of advance income tax ruling (the "Ruling"), which you propose to publish in the new ATR format, and provide you with our comments and approval for publication.

In our view your revised version of the Ruling is suitable for publication subject to the following changes being made prior to publication:

1.     We recommend that the description of Issues 1 and 2 be replaced with the following:

     ISSUE 1 General Anti-avoidance Rule (GAAR)

     Will GAAR apply to a series of transactions involving subsection 85(1) transfers and tax-free intercorporate dividends, the purpose of which is to transfer a specific property of one corporation on a tax-free basis to another corporation in order to provide a fund for the provision of the wife of Mr. X (the holder, directly or indirectly, of all the shares of both corporations) after his death?

     ISSUE 2 Capital Losses

     Does the Act provide for an increase in the adjusted cost base (ACB) of any property as a result of a capital loss which is realized on a redemption of shares being denied pursuant to paragraph 40(2)(e) or paragraph 85(4)(a) of the Act?

2.     Paragraph 18 of the Ruling should be deleted as the existence of price adjustment clauses is not essential to the rulings given.  Further, if paragraph 18 were to remain as it is, further facts would have to be disclosed in order to make it clear that the conditions of subsection 191(4) of the Income Tax Act (the "Act") were satisfied for the purpose of ruling D; that is, that the price adjustment clauses affect only the redemption price and not the "specified amount" for the purposes of subsection 191(4) of the Act.

3.     We recommend that the discussion of ISSUE 1 under LAW AND ANALYSIS in your revised version be replaced with the following:

     "The transfer of the X Co Property to Z Co for the ultimate benefit of Mrs. X is accomplished on a tax-deferred basis using the rollover provisions of subsection 85(1) of the Act and the intercorporate dividend deduction under subsection 112(1) of the Act.  Although the rollover transactions and the share redemptions resulting in the deemed dividends might constitute avoidance transactions within the meaning assigned by subsection 245(3) of the Act, the rollovers are specifically permitted by subsection 85(1) of the Act and the use of intercorporate tax-free dividends is subject to the scrutiny of subsection 55(2) by virtue of paragraph 55(3)(a) of the Act, the transactions giving rise to the dividends cannot be considered to constitute or result in a misuse of the provisions of the Act or an abuse having regard to the provisions of the Act read as a whole."

4.     We have made other minor editing changes for the sake of clarification and consistency of style as indicated in our mark-up of your revised version of the Ruling attached hereto.

M.A. Hiltz for Director GeneralSpecialty Rulings DirectorateLegislative and Intergovernmental Affairs Branch