3 December 1990 Internal T.I. 903329 F - Transfer of Debt Property to Corporation by Shareholder

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.

December 3, 1990

Dear Sirs:

Re:  Subsection 85(1) and Section 80 of the Income Tax Act (the "Act")

This is in response to your request for a technical interpretation contained in your letter of November 19, 1990, wherein you requested our opinion as to whether the provisions of subsection 85(1) of the Act would apply where a corporate taxpayer disposes of a debt obligation, to the debtor who is a taxable Canadian corporation, and receives newly issued shares of the debtor corporation as consideration for the transfer. The transferor and the transferee would file the prescribed form within the time limits specified in subsection 85(6) of the Act.

You also requested our opinion as to whether section 80 of the Act would apply to the transfer described above, if the paid-up capital and the fair market value of the newly issued shares was not less the principle amount of the debt obligation.

Opinion

Generally, in our opinion, if the capital property disposed of by the taxpayer was debt owing by the corporation it would qualify as eligible property within the meaning of subsection 85(1.1) of the Act.

As to whether a different conclusion or the application of other provisions of the Act such as section 245 would apply to this transaction or to a series of transactions of which this transaction is a part would depend on an examination of all the relevant facts and documents pertaining to the situation described.

Where a debtor corporation issues its own shares to a creditor in settlement of a debt, the provisions of section 80 of the Act do not apply if the fair market value of the shares at that time are not less than the principal amount of the debt then outstanding.

As explained in paragraph 25 of Information Circular 70-6R2 dated September 28, 1990, any written or verbal opinions are not rulings and are not binding upon Revenue Canada, Taxation in respect of any taxpayers.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch