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.
922723
XXXXXXXXXX W.P. Guglich
(613) 957-2102
Attention: XXXXXXXXXX
December 7, 1992
Dear Sirs:
Re: Application of Paragraph 69(1)(c) of the Income Tax Act (the ("Act")to the Recipient of a Capital Contribution
This is in reply to your letter of September 14, 1992 wherein you request our views whether the adjusted cost base ("ACB") of property transferred by way of a capital contribution by a non-arm's length shareholder to his corporation is increased to fair market value ("FMV") pursuant to paragraph 69(1)(c) of the Act.
It is your view such a capital contribution should be considered a gift and paragraph 69(1)(c) of the Act would apply.
Paragraph 3 of IT-110R2 and Special Release thereto defines "gift" for purposes of sections 110.1 and 118.1 as voluntary transfer of property without valuable consideration and no consideration or benefit of any kind accrues to the donor as a result of the transfer. This definition would also apply for purposes of paragraph 69(1)(c) of the Act.
A capital contribution by a shareholder to his corporation would result in an increase in the value of the shares of the corporation and the shareholder would be considered to have received a benefit. Consequently, a capital contribution by a shareholder to his corporation would not be considered a gift and paragraph 69(1)(c) of the Act would not apply to increase the ACB of the property contributed to fair market value. However, we recognize that an increase to the ACB of the property could be achieved if the shareholder were to sell the property at FMV to the corporation and subsequently contribute his proceeds of disposition to the corporation.
We trust our comments will be of assistance to you.
Yours truly,
E. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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© Sa Majesté la Reine du Chef du Canada, 1992
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