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 April 7, 1988 in which you requested our views concerning the application of section 183.1 of the Act in the situation described below.
A private corporation (“Opco”) has only common shares outstanding, 60% of which are owned by an individual (“Father”) and 40% of which are owned by his two sons (“the Sons”). Father wishes to allow the future appreciation in the value of Opco to accrue to the Sons.
Accordingly, it is proposed that the capital of Opco be reorganized as follows:
- 1) All of the shareholders of Opco will exchange their common shares for special shares having paid-up capital equal to the paid-up capital of the common shares, and a redemption value and fair market value equal to the fair market value of the common shares at that time.
- 2) The Sons will subscribe for new common shares for nominal consideration.
It is your expectation that the reorganization would be a reorganization of capital to which section 86 of the Act would apply.
You requested our views as to whether section 183.1 of the Act would apply to the transactions described above.
As your letter deals with actual fact situations and proposed transactions, your request should have been the subject of an advance income tax ruling. The procedures and the requirements for obtaining an advance income tax ruling are set out in Information Circular 70-6R issued December 18, 1978 by Revenue Canada - Taxation. We are, however, prepared to offer the following comments concerning the transactions described in your letters.
Provided that section 183.1 of the Act is enacted substantially in the form proposed in Bill C-139, (given first reading in the House of Commons on June 30, 1988), Revenue Canada, Taxation will not interpret the existing version of section 183.1 of the Act, prior to its repeal, as being applicable to transactions of the type described above, as a result of those transactions in and by themselves.
The above comments are based only on the provisions of the Act referred to above and should not be interpreted as implying that any other provision of the Act would or would not apply to, or as a result of, any actual transactions or events similar to those described in the situation above.
In accordance with the practice described in paragraph 24 of Information Circular 70-6R, the foregoing responses are opinions and not rulings.
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