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.
THE CONFERENCE FOR ADVANCED LIFE UNDERWRITING
1993 Annual Conference
Question 1
Where a shareholder of a closely held corporation, bequeaths such shares to his estate, subsection 70(5) deems him to have disposed of his shares immediately before his death, for proceeds equal to their fair market value at that time, and deems the estate to have acquired the shares at a cost equal to that amount. As a result, the shareholder often realizes a capital gain in the year of death. Frequently, the corporation redeems such shares from the estate resulting in a deemed dividend to the estate pursuant to subsection 84(3), and a capital loss on the disposition. Where such redemption takes place in the first taxation year of the estate, the legal representative may elect pursuant to subsection 164(6) to deem this loss to be a loss of the deceased for his year of death, which can then be offset against the capital gain.
However, where a taxpayer disposes of capital property to a corporation, subsection 85(4) deems any resulting capital loss to be nil, where, immediately after the disposition, the corporation "was controlled directly or indirectly in any manner whatever, by the taxpayer, by the spouse of the taxpayer or by a person or group of persons by whom the taxpayer was controlled, directly or indirectly in any manner whatever".
In a situation where the trustee of the estate controls the corporation by virtue of his personal share holdings after the redemption, would subsection 85(4) apply to deny the loss incurred by the estate on the redemption of its shares.
Response
As stated in our response to part (b) of Question 42 of the 1991 Canadian Tax Foundation Round Table, subsection 85(4) will not generally apply unless the corporation is, immediately after the disposition of its shares by the estate, controlled, directly or indirectly in any manner whatever, by the estate. The expression "controlled, directly or indirectly in any manner whatever," has the meaning assigned by subsection 256(5.1).
However, because new issues have recently arisen related to other areas of taxation where control of trust property is relevant, we will be re- evaluating our position on this particular question. The revised position, if any, will be communicated to the public by the most convenient means available.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1993
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1993
Email this Content