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: STOP-LOSS ON TRANSFER CONTROL BY GROUP SECTION: 85(5.1)]
PRAIRIE PROVINCES TAX CONFERENCE
May 19 & 20, 1992
DRAFT/EBAUCHE
Question 1
Subsection 85(5.1) is a "stop loss" rule which applies, among other situations, where the transferee was a member of a group of persons that immediately after the disposition controlled the transferor directly or indirectly in any manner whatever (paragraph 85(5.1)(b)) . If A and B are unrelated individuals who own 95% and 5%, respectively, of the shares of Opco, could the rule apply to a transfer of depreciable property from Opco to B? What if A and B each own 50% of the shares in Opco? Should the section refer to transfers to members of a "related group" instead of to transfers to members of a "group"?
Department's Position
In the first situation (where B owns 5% of the shares of Opco), B is not, for the purposes of subsection 85(5.1), a member of a group which directly or indirectly controls Opco since A acting on his own controls Opco. In Southside Car Market Ltd. et. al. v. M.N.R. [[1982] C.T.C. 214] (82 DTC 6179 (FCTD)) the court held that where one person controls a corporation, it cannot also be said to be controlled by a group. Assuming that neither B nor his spouse has any direct or indirect influence that would, if exercised, result in control in fact of Opco, subsection 85(5.1) would not apply to a transfer of depreciable property from Opco to B.
In the second situation (where A and B each own 50% of the shares of Opco), it is a question of fact as to whether A and B are a group which directly or indirectly controls Opco and the question could only be answered after a review of all the relevant circumstances. For A and B to constitute a group that controls Opco, there must exist a common link or interest between them (which must involve more than their status as shareholders). If they are, in fact, such a group, then subsection 85(5.1) could apply to a transfer of depreciable property from Opco to B.
The final question relates to tax policy and should be addressed to the Department of Finance.
Author: D.J. Powrie
April 28, 1992
File: 7-921146
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