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:
RE: Request for Technical Interpretation Subsections 85.1(3) and 39(2) of the Income Tax Act (Canada)
This is in reply to your letter of March 12, 1987.
You have asked for our opinion on whether a foreign exchange gain could be taxed under subsection 39(2) of the Income Tax Act (the "Act") where there is a transfer of shares of a foreign affiliate of a taxpayer to another foreign affiliate of the taxpayer (the "acquiring affiliate") solely in exchange for shares of the acquiring affiliate, and where subsection 85.1(3) of the Act has application with respect to the transaction.
In our opinion, subsection 39(2) of the Act can be used to compute a foreign exchange capital gain arising as a result of a disposition of property only where it has been determined under section 40 of the Act that a gain has been made. As you correctly point out, in a situation where subsection 85.1(3) of the Act has application and where the sole consideration for the above-mentioned transfer of shares is shares of the acquiring affiliate, the taxpayer's deemed proceeds of disposition under paragraph 85.1(3)(c) for the transferred shares will be equal to the aggregate of the adjusted cost bases of such transferred shares. Thus, there can be no gain on the share transfer under section 40, and subsection 39(2) of the Act cannot apply.
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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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