9 January 1991 Ruling 903543 F - Transfer of Property to Corporation

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.

Dear Sir:

Re: Request for Technical Interpretation

We are writing in response to your letter of December 5, 1990 wherein you requested our comments on whether the gain on the sale of transferred assets, which were capital property of the transferor, by the transferee immediately after the transfer would be considered a capital gain or income from an adventure or concern in the nature of trade in the following hypothetical situation:

1.     Opco is owned equally by Aco and Bco who deal at arm's length with each other.

2.     Opco transfers fifty percent of its assets to Bco in the course of a reorganization described in paragraph 55(3)(b) of the Income Tax Act (Canada) (the "Act").

3.     Opco and Bco jointly elect under the provisions of subsection 85(1) of the Act to transfer the assets at their adjusted cost base to Opco.  As consideration, Opco receives shares of Bco having an aggregate redemption value equal to the fair market value ("FMV") of the transferred assets.  Adjusted cost base ("ACB"), as used here and subsequently, has the meaning assigned by paragraph 54(a) of the Act.

4.     Immediately after the transfer, Bco sells the transferred assets to Aco for cash consideration equal to their FMV, which exceeds their ACB.

Capital property and capital gain have the meanings assigned by paragraphs 54(b) and 39(1)(a) of the Act, respectively.

Comment

Generally we would expect that the sale of the transferred assets by Bco in the above situation would be on account of capital.  The transfer of the assets to Bco would not, in and by itself, alter this general view.  Whether any other provisions of the Act would be applicable can only be determined with respect to the facts of a particular case.

The comment expressed is not an advance income tax ruling and is not considered binding on the Department, in respect of any taxpayer, in accordance with paragraph 21 of Information Circular 70-6R2 dated September 28, 1990.

Yours truly,

for DirectorReorganizations and Non-Resident Division Rulings Directorate Legislative and Intergovernmental Affairs Branch