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.
Decision Summary
Reference: Paragraph 95(1)(e.2)
Subject: Subsection 85(1) rollovers for less than fair market value consideration.
Problem: Can 85(1)(e.2) apply on an 85(1) rollover from a parent to a 100% owned subsidiary or from a 100% owned subsidiary to another 100% owned subsidiary of the same parent?
Position: 1. Normally 85(1)(e.2) is not applied unless the "other shareholder" has benefited over all. In the first instance there is no other shareholder. In the second instance there is usually no overall benefit to the parent.
- 2. However, if the transferee has non-capital losses we may refuse to rule. See Decision Summary R2-4 in this regard.
- 3. In addition we may refuse to rule if the consideration is less than the fair market value of the transferred property at the time of the last significant purchase of shares of the corporate transferor.
Comments: Several rulings reflecting the above position have been given in the past few months. Position 3 was taken to prevent the potential for artificial creation of losses or reduction of gains on the sale of the transferor's shares.
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