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.
This is in reply to your letter of July 3 concerning certain proposed transactions.
In your situation, Company A, which is controlled by XXX brothers, sold its XXX business but retained a property that was initially acquired subsequent to 1971 for expansion purposes in connection with the XXX operation
As the company now has a large amount of pre-1972 capital surplus on hand, it is proposed that a new company (Company B) will be incorporated which would also be controlled by the brothers. Company A would then transfer the property to Company B under subsection 85(1) and receiver preferred shares in consideration for it. Subsequently, Company B would redeem the preferred shares.
After the redemption of the preferred shares has occurred, Company A would distribute its assets to the brothers in circumstances such that subsection 88(2) would be applicable.
Where proposed transactions are contemplated in respect of particular taxpayers, it is the Department's policy not to comment thereon without reviewing all the relevant facts. If you were to submit the facts of your case to us, we would consider the issuance of an advance income tax ruling as outlined in Information Circular 70-6R. As an alternative you may wish to submit the facts of your case to a district taxation office.
We trust that the above comments will be of assistance to you.
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© Sa Majesté la Reine du Chef du Canada, 1980
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