8 September 1989 Internal T.I. 58079 F - Sale of Shares to Corporation

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.

September 8, 1989

Dear Sirs:

Re:  Subsection 85(1) of the Income Tax Act (Canada) (the "Act")

This is in reply to your letter of May 9, 1989 wherein you requested our opinion in the following hypothetical situation.

A shareholder ("Mr. A") of a corporation ("Aco") intends to sell, at fair market value, his class A common shares of Aco to Aco in consideration for class B common shares of Aco which have the same fair market value and stated capital as the class A common share sold.  A joint election, pursuant to subsection 85(1) of the Act will be filed by Mr. A and Aco with respect to the sale of the class A common shares.  The agreed amount in respect of the class A common shares will be less than the fair market value of such shares and greater than the cost amount of such shares.

We agree with your opinion that subsection 85(1) of the Act would be applicable provided that the share attributes of the class B common shares are not identical to the share attributes of the class A common shares.  If the share attributes of both classes of shares are identical, there may not be a disposition of the class A common shares and as a consequence, subsection 85(1) of the Act may not be applicable.

This opinion represents our general view with respect to the subject matter of your letter.  The facts of a particular situation may lead to a different conclusion.  The foregoing opinion is not a ruling and, in accordance with the guidelines set out in Information Circular 70-6R dated December 18, 1978, is not binding on the Department.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch