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.
Section 85.1ruling request from XXX
The request involves the takeover of certain Canadian companies by an XXX corporation. The XXX corporation is precluded from making his offer to the Canadian shareholders a tax-deferred rollover under section 85.1 on a direct share-for-share exchange and has attempted to circumvent the basic problem by incorporating a Canadian subsidiary, shares of which will be offered to the Canadian shareholders of the target companies on what purports to be an 85.1 share-for-share exchange.
The arrangement technically fails by virtue of the offer containing an additional right to exchange, on a one-for-one basis, the shares of the Canadian subsidiary for shares of the XXX parent at the holder's option. This right technically makes the transfer ineligible for section 85.1 treatment since it is additional consideration within the meaning of paragraph 85.1(2)(d). We are asked to rule that this additional consideration does not disqualify the arrangement.
If we rule favourably, the original exchange will be a tax-free rollover and the second exchange will be a taxable disposition for the Canadian shareholders. If we adopt the technically correct interpretation, both exchanges will be taxable dispositions since section 85.1 will not apply.
On due consideration, I see no reason to adopt an incorrect interpretation designed to facilitate the takeover of Canadian companies by foreign interests. The strict technical interpretation is appropriate and we should rule unfavourably.
I am advising you in writing so a copy can be placed on the file. XXX
c.c. J.R. Robertson
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1981
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1981
Email this Content