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:
Whether sale to "niece in law" is at arm's length
Position:
Question of fact. Ruling provided with proviso.
Reasons:
XXXXXXXXXX 3-961749
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 1996
Dear Sirs:
Re: Advance Income Tax Ruling
XXXXXXXXXX
We are writing in response to your letter of XXXXXXXXXX wherein you requested an advance income tax ruling in respect of the above taxpayer. We also acknowledge your letters of XXXXXXXXXX.
To the best of your knowledge, and that of the parties to this ruling, none of the issues contained in this advance income tax ruling is being considered by a Tax Services Office and/or a Taxation Centre in connection with an income tax return previously filed and none of the issues contained herein is under objection or appeal.
Unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.), c.1, as amended (the "Act").
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as follows:
Facts
XXXXXXXXXX is owned
XXXXXXXXXX
is a taxable Canadian corporation and a Canadian-controlled private corporation which was formed by an amalgamation on XXXXXXXXXX under the laws of XXXXXXXXXX The purpose of the amalgamation was to simplify the structure of XXXXXXXXXX corporate holdings and was not undertaken in contemplation of the proposed transactions described below. The terms "taxable Canadian corporation" and "Canadian-controlled private corporation", as used here and subsequently, have the meanings assigned by subsections 89(1) and 125(7).
XXXXXXXXXX owns XXXXXXXXXX is a taxable Canadian corporation and a Canadian-controlled private corporation which was incorporated on XXXXXXXXXX under the laws of XXXXXXXXXX.
XXXXXXXXXX is owned XXXXXXXXXX and are resident in Canada.
XXXXXXXXXX owns XXXXXXXXXX is a taxable Canadian corporation and a Canadian-controlled private corporation which was incorporated on XXXXXXXXXX under the laws of XXXXXXXXXX.
XXXXXXXXXX is owned by XXXXXXXXXX.
XXXXXXXXXX owns XXXXXXXXXX is a taxable Canadian corporation and a Canadian-controlled private corporation which was incorporated on XXXXXXXXXX under the laws of XXXXXXXXXX.
XXXXXXXXXX wishes to purchase the shares and shareholders' loans of XXXXXXXXXX for an amount equal to their fair market value. At the time of the purchase, XXXXXXXXXX will own only shares and loans of XXXXXXXXXX.
The issued and outstanding shares of XXXXXXXXXX are held by their holders as capital property as follows:
XXXXXXXXXX Class XXXXXXXXXX voting common shares without par value which are owned XXXXXXXXXX The shares have an aggregate paid-up capital and adjusted cost base of $XXXXXXXXXX
XXXXXXXXXX Class XXXXXXXXXX non-voting common shares with a par value of $XXXXXXXXXX each which are owned XXXXXXXXXX The shares have an aggregate paid-up capital of $XXXXXXXXXX The XXXXXXXXXX shares owned by XXXXXXXXXX have an adjusted cost base of $XXXXXXXXXX and the XXXXXXXXXX shares owned by XXXXXXXXXX have an adjusted cost base of $XXXXXXXXXX
XXXXXXXXXX Class XXXXXXXXXX non-voting preferred shares with a par value of $XXXXXXXXXX each of which XXXXXXXXXX owns XXXXXXXXXX shares and XXXXXXXXXX owns XXXXXXXXXX shares. The shares owned by XXXXXXXXXX have an aggregate paid-up capital and adjusted cost base of $XXXXXXXXXX The shares owned by XXXXXXXXXX have an aggregate paid-up capital and adjusted cost base of $XXXXXXXXXX The shares are redeemable and retractable at a redemption amount of $XXXXXXXXXX per share.
The Class XXXXXXXXXX common and Class XXXXXXXXXX preferred shares were received by XXXXXXXXXX as a result of a transfer under subsection 85(1). The fair market value of each share is not less than the adjusted cost base thereof to the holder. The terms "capital property" has the meaning assigned by section 54. The terms "paid-up capital" and "adjusted cost base", as used here and subsequently, have the meanings assigned by subsection 89(1) and section 54, respectively.
The amounts of XXXXXXXXXX shareholders' loans will be determined at the date of sale. However, they are estimated to be approximately $XXXXXXXXXX in total.
Each of XXXXXXXXXX is not related under the Act and deals at arm's length with each of
XXXXXXXXXX
XXXXXXXXXX intends to personally purchase the shares and shareholders' loans of XXXXXXXXXX for cash consideration equal to the fair market value of those assets.
Proposed Transactions
XXXXXXXXXX will sell, at fair market value, his XXXXXXXXXX Class XXXXXXXXXX common shares, XXXXXXXXXX Class XXXXXXXXXX common shares and XXXXXXXXXX Class XXXXXXXXXX preferred shares of XXXXXXXXXX to XXXXXXXXXX for cash. A deduction under subsection 110.6(2.1) will be claimed in respect of any capital gain realized on this sale.
XXXXXXXXXX will sell, at fair market value, her XXXXXXXXXX Class XXXXXXXXXX common shares, XXXXXXXXXX Class XXXXXXXXXX common shares and XXXXXXXXXX Class XXXXXXXXXX preferred shares of XXXXXXXXXX to XXXXXXXXXX for cash. A deduction under subsection 110.6(2.1) will be claimed in respect of any capital gain realized on this sale.
Purpose of the Proposed Transactions
XXXXXXXXXX wishes to own XXXXXXXXXX The purpose of the proposed transactions is to have XXXXXXXXXX acquire the shares of XXXXXXXXXX owned by XXXXXXXXXX.
Rulings Given
Provided that the above statements of facts and proposed transactions are accurate and constitute complete disclosure of all the relevant facts and proposed transactions and that the proposed transactions are carried out as set forth herein, the following rulings are given:
Provided that each of XXXXXXXXXX deals at arm's length with XXXXXXXXXX at the time of the sales referred to in paragraphs 12 and 13 above, the provisions of subsection 84.1(1) will not apply in respect of the sales of the XXXXXXXXXX shares described in those paragraphs.
The provisions of subsection 245(2) will not be applied as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed herein.
The above rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act.
The above rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R2 dated September 28, 1990 issued by Revenue Canada and are binding provided the proposed transactions are completed by
XXXXXXXXXX
Nothing in this letter should be construed as implying that a deduction pursuant to subsection 110.6(2.1) will be available to XXXXXXXXXX as a result of the dispositions of the shares of XXXXXXXXXX as described in paragraphs 12 and 13 above, respectively.
The rulings given above should not be construed as confirmation that we have reviewed and satisfied ourselves that XXXXXXXXXX deals at arm's length with each of XXXXXXXXXX. In the event that it is determined that XXXXXXXXXX does not deal at arm's length with XXXXXXXXXX the rulings given above will not be valid.
Nothing in this ruling should be construed as implying that Revenue Canada has agreed to or reviewed the determination of the fair market value of any particular asset, or the adjusted cost base or paid-up capital of any shares referred to herein.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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