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 14, 1988 in which you asked for our views on the application of Part II.1 of the Income Tax Act to the following situation.
"An individual acquires the shares of an operating company in an arm's length transaction. The company is incorporated after 1971. The individual wishes to extract an amount equal to the adjusted cost base of his shares.
A holding company is formed wholly owned by the individual and the operating company shares are transferred in for consideration of common shares and debt equal to the cost base. A dividend is paid by the operating company up to the holding company in an amount not exceeding the retained earnings of the operating company. The retained earnings would be less than the cost base of the shares. Payments are made to the shareholder on his note from the holding company."
In our view the provisions of subsection 183.1(1) of the Act would apply to the above situation, as the three requisites appear to be present and the considereration is to be provided by the operating company. The tax levied under this provision would be exigible at the time of the sale of the shares to the holding company, regardless of whether the funds were to be transferred to the holding company by way of dividend or loan.
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, 1988
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, 1988
Email this Content