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 dated January 6, 1983 concerning paragraph 85(1)(e.2) of the Act.
In your hypothetical situation Mr. A owns all of the issued shares of A Co. and all of the issued shares of B Co. A Co. will transfer capital assets, electing adjusted cost base, to B Co. receiving as consideration common shares of B Co. The Common shares of B Co. will have a fair market value less than the fair market value of the property so transferred.
It is our view that paragraph 85(1)(e.2) of the Act could apply in the above situation. However, notwithstanding that fair market value consideration must be received so as to avoid the possible application of paragraph 85(1)(e.2) of the Act the Department is prepared on a case-by-case basis to rule that the provisions of the above paragraph would not be applied where equity is preserved. Accordingly if you have a particular taxpayer in mind you may wish to consider applying for an advance income tax ruling whereby at that time we may consider the facts of your case more closely.
We trust our reply is sufficient for your purpose.
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© Her Majesty the Queen in Right of Canada, 1983
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© Sa Majesté la Reine du Chef du Canada, 1983
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