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.
APFF - 1995
Question 30
Subsection 15(1)
In cases where a corporation issues shares of its capital stock to a new shareholder for an amount less than their fair market value, does Revenue Canada plan to apply the provisions of subsection 15(1) of the Act to the new shareholder for the amount represented by the difference between the fair market value of the shares and their cost to the new shareholder or the ratio from the ruling in the Kieboom case, that is a deemed disposition for the existing shareholders in the corporation? Will Revenue Canada invoke other provisions of the Act in such situations?
Answer by the Department of Revenue
It is not possible to state whether subsection 15(1) would by applied or whether the Department would consider that there had been a deemed disposition of property to which subsection 69(1) would apply without having more information. The following passage from The Queen v. Kieboom, 92 DTC 6382, found on page 6385, underlines the fact that it is not always the corporation that does the conferring in this type of situation:
“It is not disputed that the acquisition of the shares at less than the fair market value was a benefit to the children, but it is contended that it was the corporation, not the taxpayer, which did the conferring. This is inaccurate. Although it is true that it was the corporation which actually issued the shares, it cannot be said that it was conferred by the corporation.”
A taxpayer who has shares issued to his spouse or children by a corporation, as described in Kieboom, will be considered to have disposed of property and will be deemed to have received a consideration equal to the fair market value of the property under subparagraph 69(1)(b)(i). The Federal Court of Appeal felt that Albert Kieboom had transferred an interest in a corporation to his spouse and children. The transfer was indirect, but there was still a transfer.
Subsection 15(1) could be applicable if the benefit is conferred by the issuing corporation. All the facts are required in order to determine whether other provisions of the Act could be applied.
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