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.
Question 13
XCo is owned 50% by each of Aco and Bco, two corporations which deal at arm's length. Xco will transfer the proportionate share of each type of its property to Aco and Bco pursuant to paragraph 55(3)(b) of the Act. Aco will then transfer some of the property it receives from Xco to two related corporations, Cco and Dco, in such manner that paragraph 55(3)(a) of the Act will purportedly apply. Will the latter transfer be considered as part of the same series of transactions which includes the first transfer and which results in a disposition of property of Xco to an arm's length person such that paragraph 55(3)(a) would not apply?
Department's Position
Although it is a question of fact to be determined on the basis of the facts in each case, it is our general view that the transfer of property from Aco to Cco and Dco would normally not only be considered as part of the same series of transactions as, but would normally also be considered to be "in the course of" the same reorganization as, the first transfer of property from Xco and Aco and Bco. Consequently, the exception contained in paragraph 55(3)(a) will not normally apply because the dividends will be received as part of the same series of transactions that results in a disposition of any property to a person with whom the corporation that receives the dividend is dealing at arm's length. Also, the requirements of paragraph 55(3)(b) of the Act are not met in that property of Xco will be indirectly transferred to Cco and Dco who are not shareholders of Xco immediately before the transfer.
Prepared by: S. Leung
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