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.
Principal Issues:
Debt Settled for Shares - Application of Section 80
Position TAKEN:
Section 80 applies
Reasons FOR POSITION TAKEN:
FMV of Shares less than Principal Amount of Debt
May 9, 1994
Montreal District OfficeHead Office
G. DorelienRulings Directorate
Basic Files - Section 441-3-7 Michael D. Cooke
(613) 957-8953
940934
XXXXXXXXXX
Application of Subsection 80(1)
This is in reply to your memorandum of April 7, 1994, in which you requested our comments on the application of subsection 80(1) of the Income Tax Act (the "Act"). The material you sent in with your request is returned with this memorandum.
XXXXXXXXXX
Although XXXXXXXXXX added the full amount of the indebtedness cancelled to the stated capital of the shares issued, we understand that the fair market value ("FMV") of these shares at the time of their respective issue was $NIL; or, less than the respective amounts added to the stated capital of the shares.
After carefully considering the argument's presented by
XXXXXXXXXX
and the other materials included with their submission dated March 23, 1994, we confirm that the Department's position with respect to the application of subsection 80(1) is as set out in paragraph 2 of Interpretation Bulletin IT-293R - Special Release, which states in part:
"... where a debtor corporation issues its own shares to a creditor in settlement of a debt... section 80 will have application to the corporation where the fair market value of the shares is less than the principal amount of the debt..."
Accordingly, to the extent that the FMV of the share consideration received by XXXXXXXXXX is less than the principal amount of the debt settled, subsection 80(1) will apply to the difference.
for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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, 1994
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, 1994
Email this Content