22 March 1994 External T.I. 9406315 - FRACTIONAL SHARE

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.

			940631

XXXXXXXXXX A. Seidel

Attention: XXXXXXXXXX

March 22, 1994

Dear Sirs:

This is in reply to your letter submitted by facsimile on March 10, 1994 with respect to the application of section 85.1 of the Income Tax Act S.C. 1970-71-72,c.63 as amended consolidated to June 10, 1993 (the "Act") in the situation where a taxpayer exchanges shares of a taxable Canadian corporation that are capital property for non-share consideration and shares of another taxable Canadian corporation.

The situation described in your letter appears to involve a series of actual proposed transactions and accordingly, should be the subject of an advance income tax ruling. Should you wish to request an advance income tax ruling on these or other proposed transactions, please refer to the procedures outlined in Information Circular 70-6R2. Although we are unable to provide you with any opinion with respect to the specific transactions described in your letter, we can provide you with the following general comments.

The Department's views with respect to the application of section 85.1 of the Act are outlined in Interpretation Bulletin IT-450R ("IT-450R"). Paragraph 6 of IT-450R discusses the situation where, because of the particular exchange agreement, a vendor cannot exchange all of his shares in the acquired corporation for the specified number of shares in the purchaser corporation with the result that the vendor becomes entitled to a fractional share in the purchaser. Paragraph 7 of IT-450R discusses the situation where a vendor receives shares of the purchaser for some of the exchanged shares and cash or other consideration for other exchanged shares.

Whether the requirements in IT-450R are satisfied and whether section 85.1 of the Act will apply to any share for share exchange is a question of fact which can only be determined after reviewing all of the steps required to complete the transaction.

These comments are provided in accordance with the guidelines set out in paragraph 21 of Information Circular 70-6R2.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch