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.
Dear: XXX
This is in reply to your letter of September 23, 1980 in which you requested our opinion as to whether subsection 86(1) of the Income Tax Act (the Act) would apply to a situation in which more than one class of common shares would be received as consideration from a corporation in exchange for all the shares of one class that were owned by a taxpayer in that corporation immediately before the exchange.
Subject to the provisions of subsection 26(27) of the Income Tax Application Rules (ITAR), it is our opinion that subsection 86(1) of the Act would apply in a case where a taxpayer receives shares of more than one class of the capital stock of a corporation (the "new" shares), in exchange for all the shares of one class of the capital stock of that corporation (the "old" shares) that were owned by him as capital property.
However, depending on the circumstances, other provisions of the Act may be applicable where the issuance of shares of more than one class in exchange for one class results in income-splitting or is designed primarily for the improper avoidance, reduction or deferral of tax.
For subsection 86(1) to apply, it should also be noted that there must be a disposition of the "old shares" in the course of a reorganization of the capital of the corporation.
For the provisions of subsection 26(27) of the ITAR to apply, we are of the view that shares of one class only must be received as the sole consideration in exchange for shares of another class of the capital stock of the corporation
In addition, we would point out that either subsection 84(1) or subsection 84(3) of the Act would be applicable where the paid-up capital, as defined in paragraph 89(1)(c) of the Act, of the new shares exceeds the paid-up capital (as so defined) of the old shares.
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© Her Majesty the Queen in Right of Canada, 1981
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© Sa Majesté la Reine du Chef du Canada, 1981
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