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.
922754
XXXXXXXXXX
L. Holloway
(613) 957-8953
Attention: XXXXXXXXXX
December 7, 1992
Dear Sirs:
Re: Capital Gains Exemption
- This is in reply to your letter dated September 14, 1992, and to confirm your telephone conversation of November 19, 1992, with Lena Holloway of our office.
- Your letter described a situation whereby a corporation goes public and the shareholder is given shares of the "public" company in exchange for his previous shares. The taxpayer then proceeds to sell off his shares of the public company. You ask whether any capital gain realized by the taxpayer on the sale of the public company shares would be eligible for the $ 500,000 capital gains exemption under subsection 110.6(2.1) of the Act.
- As the situation described in your letter involves actual taxpayers and completed transactions, we are unable to comment specifically on the issues set out in your letter. However, we offer the following general comments regarding the eligibility of realized capital gains for exemption treatment and situations where proceeds are held in escrow.
Our Comments
- The definition of qualified small business corporation shares ("QSBC") is provided in subsection 110.6(1) of the Act. The determination of whether shares of a corporation meet this definition is a question of fact. If a private corporation "goes public" and in the process QSBC shares are exchanged for shares of the now public corporation using a rollover provision of the Act (e.g. section 86), there are no provisions to allow for a flow through of the QSBC status to the exchanged "public" corporation shares. A capital gains exemption would be available only on any gain triggered on the disposition when the old QSBC shares are exchanged for the new public shares.
We trust these comments will be of assistance to you.
Yours truly,
E.M. Wheeler
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1992
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© Sa Majesté la Reine du Chef du Canada, 1992
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