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: Would an amalgamation constitute a transfer of property for the purposes of subsection 74.4(2)?
Position TAKEN: An amalgamation could constitute a transfer of property. However, such determination would require a review of all of the facts.
Reasons FOR POSITION TAKEN: If the shares of the predecessor corporations are cancelled as a result of the amalgamation then the application of subsection 84(9) would result in a disposition of shares which would be considered a transfer of property for the purposes of section 74.4 of the Act.
942992
XXXXXXXXXX M.P. Sarazin
Attention: XXXXXXXXXX
March 20, 1995
Dear Sirs:
Re: 74.4(2) of the Income Tax Act (the "Act")
This is in reply to your letter dated November 21, 1994 wherein you requested our comments on the application of subsection 74.4(2) of the Act in the following situation.
In 1985, Mother transferred all of her shares of Opco to Holdco as part of an estate freeze for sole consideration consisting of preferred shares of Holdco. As part of the freeze, Mother and her two minor children each subscribed for an equal number of common shares of Holdco.
Holdco's only asset consists of its shares of Opco. Neither Holdco nor Opco qualifies as a small business corporation within the meaning assigned by subsection 248(1) of the Act.
One of the main purposes of the share freeze in 1985 was to reduce Mother's income and to benefit her minor children. However, Holdco has never paid a taxable dividend on its common shares.
Opco and Holdco amalgamate to form Amalco.
You would like to know whether or not the amalgamation of Holdco and Opco would constitute a transfer of property for purposes of subsection 74.4(2) of the Act. You would also like to know if subsection 74.4(2) of the Act would be applied if Mother and her two minor children owned the identical number of common and preferred shares (with the same rights and restrictions) of Amalco as they owned of Holdco.
It appears that the interpretation you seek relates to specific taxpayers and, therefore, we bring to your attention Information Circular 70-6R2 dated September 28, 1990 and the Special Release thereto dated September 30, 1992, issued by Revenue Canada, Customs, Excise and Taxation. Confirmation with respect to proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. If you wish to obtain an advance income tax ruling for particular taxpayers with respect to specific transactions which are contemplated, a written request for an advance income tax ruling should be submitted in accordance with the Information Circular. Nevertheless, we can offer the following general comments in response to your letter.
Whether or not subsection 84(9) of the Act will apply to any particular amalgamation can only be determined following a review of all relevant facts relating to that amalgamation. This would include a review of the relevant corporate law governing the amalgamation, the amalgamation agreement and any resolutions necessary to implement the amalgamation. However, if as a result of the amalgamation, shares of a predecessor corporation were cancelled by the predecessor corporation and new shares were issued, then the provisions of subsection 84(9) of the Act would result in a disposition of a share of the capital stock of the predecessor corporation to that corporation, and this would be considered to be a "transfer of property" to Amalco for the purposes of section 74.4 of the Act, since Amalco is deemed by paragraph 87(2)(j.7) of the Act to be the same corporation as, and a continuation of, each predecessor corporation for the purpose of that section. If this were the case in the situation described in your letter, we would regard Mother as having transferred her shares of Holdco to Amalco, since Amalco and Holdco would be one and the same person by virtue of paragraph 87(2)(j.7) of the Act.
The determination of whether one of the main purposes of a transfer is to reduce the income of an individual and to benefit a person who is a designated person in relation to the individual is a question of fact which can only be determined subsequent to a review of all of the facts.
These comments are provided in accordance with paragraph 21 of Information Circular 70-6R2, dated September 28, 1990.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
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