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.
January 28, 1992
Winnipeg District Taxation Office Round Table
Question 21 - Application of Kieboom case
Spouse B owns all of the common shares of a private corporation ("PC") having a substantial fair market value. Spouse A, a child or a trust for the benefit of Spouse A and the child subscribes for common shares of PC for a nominal amount. The common shares of PC so subscribed for will have a fair market value equal to, say, 25% to 50% of the total fair market value of all of the shares of PC.
What is Revenue Canada's assessing policy in light of the Kieboom case (91 DTC 5478 (FCTD)) with respect to the above-noted situation? In particular, in Revenue Canada's view:
(a) Would there be a taxable disposition of an "economic interest" by Spouse B?
(b) Would subsection 73(1) of the Income Tax Act (the "Act") apply to the "disposition" of such economic interest to Spouse A?
(c) Would the attribution rules apply to attribute back to Spouse B:
(i) any income or loss arising on those shares subscribed for by Spouse A; and
(ii) any taxable capital gain or allowable capital loss on a subsequent disposition of those shares by Spouse A?
(d) Would PC be considered to have conferred a benefit on Spouse A, the child or the trust pursuant to subsection 15(1) of the Act?
Department's Position
The Department has appealed the decision of the Federal Court - Trial Division concerning the application of subsection 73(1) and the attribution rules to the Federal Court of Appeal.
(a) Yes.
(b) Yes, the provisions of subsection 73(1) of the Act will apply unless the taxpayer elects not to have those provisions apply.
(c) Yes, in our view the attribution rules (i.e. sections 74.1, 74.2 and 74.3 of the Act) will apply.
(d) This position was not advanced in this case, however, we agree that PC could be considered to have conferred a benefit on Spouse A, the child or the trust for the benefit of Spouse A and the child, as the case may be, such that subsection 15(1) of the Act may apply.
Prepared by Simon Leung
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