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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Subject: TRANSACTION TO PROTECT ASSET FROM OPERATIONAL RISK Section(s): 55(2)]
ROUND TABLE - CGA - JANUARY 10, 1992
Officer: P Diguer
File: 7-912213
QUESTION #8
A Ltd, an active company, is owned equally by A and B, two individuals who are not related. In order to protect certain assets from the operational risk of A Ltd, the assets are transferred under section 85 of the Act to a new corporation, B Ltd, which A and B own equally. The transfer is made in consideration of preferred rollover shares which are subsequently redeemed, giving rise to a deemed dividend.
Would the Department apply subsection 55(2) of the Act to this series of transactions, given the following:
- i) The transaction has a business purpose.
- ii) The overall interest of the two shareholders has not changed, although it is now divided among two corporations.
- iii) Mr Robertson has already indicated, in 1981, that a significant increase in the interest in any corporation (A and B Ltd) would correspond to a decrease in some other person's interest.
The parties are related de facto since they are acting in concert and have a common interest (protection of the assets from the operational risk).
ANSWER
The Department is of the opinion that the provisions of subsection 55(2) of the Act may apply to the above-mentioned series of transactions. It should be stressed, with respect to your statement that the parties are acting in concert, that the Department is of the opinion that the parties must be acting in concert not only with respect to the series of transactions in question, but on a continuing basis.
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