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.
Canadian Tax Foundation November 1992
Question 21 - Disposition of Economic Interest - Application of the Kieboom Case
In Her Majesty the Queen v. Albert Kieboom (reported in 1992 DTC 6382), the Federal Court of Appeal (the "Appeal Court") held that a benefit was conferred by the taxpayer on his wife and children as a result of the issue by the taxpayer's corporation of shares of the capital stock of the corporation to the children for nominal consideration. The Appeal Court held that former paragraph 245(2)(c) of the Act characterized the benefit as a deemed disposition by way of gift, to which the provisions of subparagraph 69(1)(b)(ii) of the Act applied. The Appeal Court also held that the attribution rules of former subsections 74(1) and 74(2) of the Act applied to include in the taxpayer's income the dividend income received by, and the subsection 69(1) proceeds of disposition deemed to have been received by, the taxpayer's wife.
Former subsection 245(2) has now been repealed and replaced by section 246 of the Act. If facts similar to Kieboom were to arise in the future, given that section 246 does not contain any reference to a gift, how would Revenue Canada support its position so as to take advantage of the Appeal Court decision in Kieboom?
Department's Position
In our view, following the repeal of paragraph 245(2)(c), a taxpayer who causes a corporation to confer a benefit on a spouse and children in the way described in the Kieboom case will be deemed by subparagraph 69(1)(b)(i) to receive proceeds of disposition of property disposed of. The Appeal Court in Kieboom found that Albert Kieboom had transferred property to his wife and children and that such property consisted of a part of his ownership of the equity in his company. Although the transfer was indirect in that it resulted from the taxpayer causing his company to issue shares to his wife and children, it was nevertheless found to be a transfer from Mr Kieboom to his wife and children.
Subparagraph 69(1)(b)(i) applies where a taxpayer has disposed of anything to a person with whom he was not dealing at arm's length for no proceeds or for proceeds less than the fair market value thereof at the time he disposed of it. In our opinion subparagraph 69(1)(b)(i) would apply to a transfer of an ownership of the equity in a corporation in circumstances similar to those in Kieboom to deem the transferor to have received fair market value proceeds of disposition.
The above comments address only the application of subparagraph 69(1)(b)(i) to circumstances similar to those in Kieboom. Other provisions of the Act may also apply in these circumstances.
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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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