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.
XXXXXXXXXX 940111
Attention: XXXXXXXXXX
February 17, 1994
Dear Sirs:
Re: Subsection 74.4(2) of the Income Tax Act (the "Act")
This is in reply to your letter of January 3, 1994, concerning the above noted provision of the Act. Specifically, you have asked whether a transfer of property by a corporation controlled by an individual to another corporation in which the individual's spouse and minor children are shareholders (in exchange for preferred shares of the corporation) would be subject to subsection 74.4(2) of the Act.
Your request appears to be a factual situation involving specific clients. As explained in Information Circular 70-6R2 it is not the Department's practice to comment on proposed transactions other than in the form of an advance income tax ruling. However, we offer the following general comments which may be of assistance to you.
Subsection 74.4(2) of the Act applies: "Where an individual has transferred or loaned property, either directly or indirectly...to a corporation and...the corporation was not a small business corporation...."
Thus, subsection 74.4(2) of the Act would not be applicable where a corporation, as opposed to an individual, has transferred or loaned property to another corporation; unless, of course, an individual may be said to have indirectly transferred or loaned property to the other corporation or where subsection 74.5(6) of the Act is applicable. Depending on the facts of a particular situation, other provisions of the Act may have application to either the transferee corporation or its shareholders; most notably, subsection 15(1), 56(2) or 245(2) of the Act.
Subsection 74.4(4) provides an exemption from subsection 74.4(2) of the Act where the conditions specified therein are met. This typically would be an estate freezing arrangement as described in paragraph 10 of Information Circular 88-2.
These comments are not an advance income tax ruling. They are provided in accordance with the guidelines set out in Information Circular 70-6R2.
Yours truly,
for Director
Rulings Directorate
Manufacturing Industries, Partnerships and
Trusts Division
Legislative and Intergovernmental
Affairs Branch
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