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.
1994 Canadian Tax Conference
Section 85 (Dale case)
One of the requirements that must be met for the provisions of section 85 to apply to a transfer of property is that the transferor receive consideration consisting of shares in the capital stock of the transferee corporation.
The recent case of Dale et al v. The Queen 94 DTC 1100 (TCC) involved a situation in which a transferor corporation purposrted to issue shares which had not been authorized. The shares were not validly issued until a subsequent year. In that case, counsel for the Minister argued that a rollover would be allowed as long as the consideration shares were validly issued before the end of the taxation year in which the transfer occurred. In allowing the rollover, Judge Bowman ruled that the words "consideration that includes shares" appearing in section 85 do not require that the shares be issued simultaneously with the transfer of the property or even within the same taxation year.
This case has been appealed to the Federal Court of Appeal. While awaiting the decision of this court, the Department intends to maintain its current practise of accepting elections under subsection 85(1) where the consideration shares are not authorized at the time of the transfer, as longs as all the following conditions are satisfied:
1.There is an agreement between the transferor and the transferee which requires, among other things, that the transferee issue the required shares.
2.The transferee immediately carries out the necessary steps to authorize the issuance of the shares; that is it files supplementary letters patent or articles of amendment, as the case may be.
3.Once the necessary amendments to the corporation's constituting documents are made, the transferee corporation issues the shares without delay.
If for any reason the transferee corporation does not obtain, under the applicable corporate law, the necessary authorization for the issuance of the shares, the election under subsection 85(1) will be considered to be invalid.
Tim Bryant
November 30, 1994
942750
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