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 July 10, 1985 concerning subsection 85(1) of the Act.
In the situation which you have outlined, Company A is owned 100% by Company B. The shareholders of Company B cause a new corporation ("Newco") to be incorporated with shareholdings identical to Company B. Newco purchases the shares of Company A from Company B, electing at adjusted cost base under subsection 85(1) of the Act, and issuing preferred shares as consideration. The fair market value of the preferred share consideration is less than the fair market value of the shares of Company A which are transferred.
You are concerned with the application of paragraph 85(1)(e.2), or any of subsections 15(1), 56(2) or 245(2).
The discrepancy between the fair market value of the property transferred and the consideration (including shares) has resulted in value being transferred to another taxpayer. In our view, depending on the particular circumstances of the situation, the transfer of value is a benefit conferred, an appropriation, or a gift. Therefore any or all of the above noted provisions of the Act may apply.
However, on an advance income tax ruling basis, the Department is prepared to consider whether it would be appropriate to seek the application of the above provisions in the circumstances you describe.
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© Her Majesty the Queen in Right of Canada, 1985
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© Sa Majesté la Reine du Chef du Canada, 1985
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