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 October 19, 1984 in which you asked for our views on the interpretation of paragraph 85.1(2)(d) of the Income Tax Act (the "Act").
You have outlined a situation wherein a share for share exchange pursuant to section 85.1 is being contemplated. As part of this transaction the purchaser will issue a certain number of shares of a particular class at the date of sale together with a promise to issue, at a later date, additional shares of that class to the vendor if subsequent earnings are better than expected. In relation to this transaction you have pointed out that paragraph 85.1(2)(d) limits the application of section 85.1 by providing that the section will not apply where "consideration other than shares of the particular class of the capital stock of the purchaser was received by the vendor". You have asked whether we would consider the promise to issue additional shares in your particular situation to constitute "consideration other than shares" for purposes of paragraph 85.1(2)(d).
In our opinion the promise to issue additional shares, as described above, would constitute "consideration other than shares of the particular class of the capital stock of the purchaser" received by the vendor for the purposes of paragraph 85.1(2)(d) with the result that subsection 85.1(1) would not apply in this situation.
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© Her Majesty the Queen in Right of Canada, 1984
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© Sa Majesté la Reine du Chef du Canada, 1984
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