20 August 1991 Internal T.I. 911807 F - Loss from Disposition to Controlled 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.

19(1)

Dear Sirs:

We are writing in response to your letter dated June 25,1991 wherein you requested our comments on whether subsection 85(4) of the Income Tax Act (Canada) (the "Act") would apply to the following situation.

Facts

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24(1)

You are of the view that subsection 85(4) of the Act will not apply to deny a capital loss to be realized by the estate upon the redemption of Opco's preferred shares owned by the estate immediately following the death of the spouse.

It appears that the interpretation you seek relates to specific taxpayers and, therefore, we bring to your attention Information

Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada, Taxation.  Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling.  If you wish to obtain an advance income tax ruling for a particular taxpayer with respect to specific transactions which are contemplated, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular.  Nevertheless, we can offer the following general comments.

Control of a particular corporation may be direct or indirect, de jure or de facto, and as such, it would be essential to review all of the facts related to a particular situation to determine who ultimately controls the particular corporation.  It is, however, our view that where an estate disposes of capital property to a corporation that, immediately after the disposition, was not controlled, directly or indirectly in any manner whatever (within the meaning of that expression as defined by subsection 256(5.1) of the Act), by the estate then the provisions of subsection 85(4) of the Act would not generally apply to disallow the capital loss realized on the disposal of the capital property.

The foregoing comments represent our general views with respect to the subject matter of your letter.  The facts of a particular situation may lead to a different conclusion.  The foregoing opinions are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R2 dated September 28, 1990, are not binding on the Department.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch