19 October 1989 Income Tax Severed Letter AC58642 - Roll-over to Corporation - Impact of Deferred Tax Liability on Fair Market Value

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.

OCT 19 1989

Business Equity Valuations Section      Specialty Rulings
3rd Floor                               Directorate
75 Albert Street                        J.E. Harms
                                        957-2109

D.A. Jones
                                        5-8642

Subsection 85(1) of the Income Tax Act (the "Act") Impact of deferred tax liability on fair market value

Attached for your review are:

1.        a copy of an enquiry letter from 19(1)  dated August
          24, 1989;

2.        a copy of the opinion letter to  19(1) referred to in
          the 19(1)

3.        a draft response to the  19(1)  enquiry in which we
          take the position that:

     (a)  the tax position of the vendor is irrelevant in
          determining the fair market value of the property for
          the purposes of subsection 85(1) of the Act; and

     (b)  the deferred tax liability of the vendor cannot be
          "assumed" by the purchaser as a part of the
          consideration for the transferred property.

The position taken in our draft response is consistent with our published position in response to Question 53 at the 1981 OTF Revenue Canada Round Table but is inconsistent with the opinion letter to 19(1) dated January 27, 1982.

May we have your comments on the position we propose to take with respect to the impact of a deferred tax liability of the vendor on the determination of the fair market value of a property for the purposes of subsection 85(1) of the Act in the situation under consideration?

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch