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.
Paragraph 85.1(1)(b) now states that a purchaser in a share-for-share exchange will have a deemed cost of an exchanged share equal to the fair market value of that share immediately before the exchange. Subclause 26(2) of Bill C-64 (first reading June 9, 1987) would amend paragraph 85.1(1)(b) for exchanges after February 17, 1987 so that the purchaser's deemed cost of an exchanged share will be the lessor of its fair market value and its paid-up capital immediately before the exchange. Provided that this amendment is enacted as proposed, it is now more attractive for the purchaser to acquire shares of a target company on the basis of an exchange that does not qualify for section 85.1 treatment, as these transactions will usually result in a higher adjusted cost base of a purchased share.
We have been requested by a purchaser to provide a ruling that paragraph 85.1(2)(d) will operate to deny the application of subsection 85.1(1) in a case where an acquisition is structured so that the vendor of a share of the target company will receive consideration consisting of a preferred share of the purchaser plus a warrant, and there will be no agreed allocation of this consideration to fractions of the sold share.
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