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 November 14, 1983 wherein you have asked for our interpretation of the following situation. Our understanding of the facts is as follows:
- 1. On March 30, 1983 Mr. A and Mrs. A agreed to separate and live separate and apart.
- 2. There are 100 shares of Opco, a Canadian controlled private corporation, registered in Mr. A's name and 1 share of Opco registered in Mrs. A's name. These assets are considered to be “family assets” within the meaning of paragraph 45(3)(a) of the Family Relations Act of B.C.
- 3. Mr. A and Mrs. A, by virtue of the aforementioned provincial statute, are each entitled to one half of the value of the shares in Opco.
- 4. The spouses have obtained independent share valuations for Opco which is approximately $1,200,000. Mr. A is not willing to recognize this value as it is his position that the valuation should amount to $800,000 and thus, Mrs. A would be entitled to $400,000.
It is proposed that Mrs. A will receive a sufficient number of shares of Opco from Mr. A in order to place 50% of the value of Opco in the possession of Mrs. A. Mrs. A will then transfer her shares to her Holdco and immediately thereafter have Opco redeem such shares at a redemption price amounting to $400,000 in the aggregate. The parties have agreed that should the value of the shares of Opco amount to more than $800,000 as a result of the liquidation of all the assets of Opco, the excess amount is to be shares equally between Mr. A and Mrs. A's Holdco.
We do not agree with your suggestion that the aforementioned excess amount and subsequent valuation and payment is being determined on an earnout basis. We also doubt that the subsequent amount, if paid by the corporation, could be categorized as a dividend paid “... on the redemption ...” of the particular shares as that phrase is contemplated in paragraph 84(3)(a) of the Act. It would appear to us that the provisions of subsections 56(2), 15(1) and 245(2) would be applicable to the excess amount, if any.
We would also like to point out that if the respective individuals are divorced at the time of redemption, subsection 55(2) may have application. If the individuals are not divorced, and dividend is deemed to have been paid pursuant to subsection 84(3) at the time of redemption, it would appear that the provisions of subsection 74(1) may apply.
We trust our comments will be of assistance.
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