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.
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File: 7-912224 |
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Officer: Marc Ton-That |
ROUND TABLE - CGA - JANUARY 10, 1992
QUESTION #19
When a corporation converts a debt owed to one of its shareholders to shares when the corporation is in a deficit position, the adjusted cost base of the shares received may, under section 69 of Act, be reduced to the market value of the shares issued if the parties are not dealing at arm's length.
Would the Department consider such a transaction to be a contribution of capital that would increase the adjusted cost base of the shares issued pursuant to subsection 53(1) of the Act?
ANSWER
The Department would consider that proportion of such part of the amount of the contribution as cannot reasonably be regarded as a benefit conferred by the shareholder on a related person (other than the corporation) to be a contribution of capital that would increase the adjusted cost base of the shares of a corporation pursuant to paragraph 53(1)(c) of the Act only if there was a real increase in the value of the shares of the corporation as a result of the conversion. Moreover, we are of the opinion that the value of the debt converted (rather than the principal amount) must be considered the amount paid to acquire the shares in determining wether the amount so paid exceeds the fair market value of the shares acquired for the purposes of paragraph 69(1)(a) of the Act.
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