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 Sirs:
This is in reply to your letter of January 29, 1987 wherein you request our opinion on the application of subsection 85(2.1) of the Income Tax Act (the "Act").
You wish to transfer several properties pursuant to subsection 85(1) of the Act and to only increase the stated capital with respect to shares taken back by an amount equal to the amount allowed for purposes of the Act.
Your request was for a determination of whether the calculation required for by subsection 85(2.1) of the Act is to be carried out on a property-by-property basis or on an aggregate property basis.
Your concern expressed was that if the calculation was to be applied on a property-by-property basis the process could become somewhat unwieldy.
In your letter you comment that the word "property" in its singular form can refer to either the sum total of one's possessions or to a particular item of one's property and suggest that this could lend support to the view that subsection 85(2.1) of the Act can be taken to apply on an aggregate property basis.
Notwithstanding the above comments, in our view, the better interpretation is that the provisions of subsection 85(2.1) of the Act apply on a property-by-property basis. We base this on the fact that subsection 85(2.1) of the Act becomes operative where subsection 85(1) or 85(2) of the Act has been applicable in respect of a disposition of property to a corporation. The wording of subsections 85(1) and 85(2) of the Act clearly indicate that the application of these subsections is on a property-by-property basis.
Since dispositions subject to subsection 85(1) or subsection 85(2) of the Act apply on a property-by-property basis and subsection 85(2.1) of the Act applies where there has been a disposition pursuant to subsection 85(1) or 85(2) of the Act, it necessarily follows that subsection 85(2.1) must also be applied on an property-by-property basis.
We agree that if you were required to pass a resolution and designate the paid-up capital with respect to each share or fraction of a share the process could become somewhat cumbrous. However, in cases where there is no non-share consideration taken back, a single corporate resolution to the effect that the stated capital of each share or fraction thereof taken back on the transfer of a particular property is equal to the agreed amount for the particular property would be sufficient to obtain the desired result.
Where there is non-share consideration taken back, allowance for this would have to be made on a property-by-property basis and a corporate resolution passed to the effect that the stated capital of each share or fraction thereof taken back on the transfer of a particular property is equal to the agreed amount for the particular property less the fair market value of the non-share consideration allocated to that particular property.
We trust that this information will be of assistance to you.
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© Her Majesty the Queen in Right of Canada, 1987
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© Sa Majesté la Reine du Chef du Canada, 1987
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