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:
How will minority interest affect the computation of fmv?
Position: Q of F
Reasons:
The determination of fmv is the responsibility of valuations unit of TSO's and comments are only provided where all of the facts are known.
980138
XXXXXXXXXX M.P. Sarazin
Attention: XXXXXXXXXX
April 6, 1998
Dear Sirs:
Re: Fair Market Value for the Purposes of Paragraph 6801(d)
This is in reply to your facsimile dated January 20, 1998, wherein you requested our views in respect of the use of a formula for determining the fair market value of shares for the purposes of paragraph 6801(d) of the Income Tax Regulations (the "Regulations"). In addition, you asked for our comments on the affect that a minority holding would have on the determination of the fair market value of the shares.
The provisions of paragraph 6801(d) of the Regulations makes specific reference to "the fair market value of shares of the capital stock of the corporation". Where a formula to calculate the fair market value meets this condition, the arrangement may qualify under paragraph 6801(d) provided all of the other conditions are satisfied. We note that there is nothing in the Regulations that would prohibit an arrangement from including a formula for the computation of the value of a share. However, the fair market value of a corporation's shares can only be determined after a review of all of the facts related to the particular share. The determination of whether the fair market value of a specific share is correct, including the effects of a minority position or the use of a specific formula, falls within the responsibility of the Valuations Unit of the Tax Services Office serving your particular client. Consequently, we suggest that you direct your query and all of the relevant facts to the appropriate Tax Services Office.
We also note that shares (common or preference) whose attributes are such that their value is derived from components of the corporation (for example, a subsidiary, a division or a line of business) would appear to be acceptable for purposes of subparagraph 6801(d)(ii) of the Regulations if those shares are shares of the capital stock of the corporation.
We trust that these comments will be of assistance to you.
Paul Lynch
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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