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.
RE: XXX
Fractional Shares Received as Consideration for Property Transferred under Subsection 85(1)of the Income Tax Act (the Act)
This is in reply to Mr. M. Skretkowicz's memorandum of December 4, 1979 wherein he requested our interpretation of the phrase "at least one share of the capital stock" as it appears in paragraph 1 of IT-191R, "Transfer of Property to a Corporation Subsection 85(1)."
We apologize for the delay in our reply.
Subsection 85(1) of the Act contemplates the issuing of shares from treasury of a corporation, to form at least part of the consideration to be taken back. XXX
XXX There, we are of the view that these elections are invalid on the grounds that a share was not received as part of the consideration for the property transferred.
In your view, the main thrust of the Copyright Act is the protection of the copyright holder as the sole party entitled to receive income from the licencing of use of the work, or from the outright sale, or granting of rights under the Act.
Our comments are as follows:
We agree that a copyright can be transferred under the provisions of subsection 85(1) of the Act. We should now determine whether the copyright represents capital property or inventory to the author. Since the facts of this situation suggest that the author created the work for the purpose of selling his manuscript and assigning his copyright, we are of the view that the copyright represents inventory to the author. As a result, the amount elected under subsection 85(1) in respect of the copyright should be treated as a disposition of Inventory.
With respect to the application of subsection 56(4), we have taken the view that it should not applied in this case although technically this subsection might be applicable. It is our opinion that subsection 85(1) of the Act provides a specific mechanism for the taxfree roll-over of property including inventory and capital property to a corporation. Consequently, an argument can be made (see Alberta & Southern Gas Co. Ltd. 77 DTC 5244) that a tax avoidance provision like subsection 56(4) is not to have application when a taxpayer brings himself within the terms of a specific roll-over provision such as subsection 85(1).
Should you have any questions, please let us know.
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