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:
In your August 25, 1987 letter, you asked for our views on the application of proposed section 183.1 of the Act when a taxpayer sells shares of a company which is wholly owned by the taxpayer and his family to his child. The child pays fair market value consideration which exceeds the paid-up capital of the shares, and the child pays some of all of the purchase price with funds provided by salary or bonus payments received from the company whose shares the child purchased.
Based on the proposed wording of section 183.1 of the Act as contained in Bill C-64, which received first and second reading in June 1987, it is our view that proposed section 183.1 of the Act could apply to the arrangement described. We have assumed that the exceptions contained in proposed subsections 183.1(3) and (6) do not apply. The conditions contained in proposed paragraphs 183.1(1)(a) and (b) of the Act are present. Proposed paragraph 183.1(2)(b) deems a distribution of corporate surplus to have occurred where the consideration for the acquisition of a share exceeds its paid-up capital, as is the case in your example. As the exceptions contained in proposed subsection 183.1(4) of the Act could not apply, the remaining question is whether one of the purposes of the series would be to achieve the indirect distribution referred to in proposed paragraph 183.1(1)(c). This question would require a determination of fact. If this example were a real case, it is entirely possible that we could conclude that one of the purposes of the series was to achieve the results described, so that Part II.1 tax would be exigible in the year the shares were sold. In our view, the words "distribution of corporate surplus" could be broad enough to encompass salary, bonus and similar payments. The distribution of corporate surplus to which proposed paragraph 183.1(1)(c) of the Act refers is not limited to corporate surpluses existing at the date of the transaction or commencement of the series of transactions or events referred to in the preamble to proposed subsection 183.1(1).
These comments are based solely on the presently proposed version of section 183.1 contained in Bill C-64, which was given first and second reading in June 1987, and are provided in accordance with the practice described in paragraph 24 of Information Circular 70-6R.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1987
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1987
Email this Content