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.
CORPORATE MANAGEMENT TAX CONFERENCE ROUND TABLE
June 1996
Question 13
Convertible property
A)Does subsection 51(2) apply to a parent corporation in respect of its shares of a wholly-owned subsidiary? Unlike paragraphs 85(1)(e.2) and 53(1)(c), subsection 51(2) does not contain an exclusion for wholly owned corporations. Consider a parent corporation that holds preferred shares in a wholly-owned subsidiary which are exchanged for common shares with a fair market value that is less than the fair market value of the preferred shares. Would the Department apply subsection 51(2) to the conversion?
B)Assume the same facts except that section 86 applies to the exchange. Would the Department apply subsection 86(2) which also does not contain an exclusion for wholly owned corporations?
Department's Position
A)Subsection 51(2) has application where subsection 51(1) applies to an exchange, the fair market value of the exchanged property exceeds the fair market value of the shares received on the conversion and it is reasonable to regard any portion of the excess as a benefit that the taxpayer desired to have conferred on a related person. Ordinarily,the Department would not consider that it is reasonable to regard the excess in value, in a situation where no one other than the parent corporation owned shares of the subsidiary, as a benefit that the parent corporation desired to confer on the subsidiary.
B)No, for the same reasons the Department would not apply subsection 86(2).
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