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.
S. Leung Tel. (613) 957-2116
MAY 23 1989
Dear Sirs:
Re: Paragraph 110.6(7)(b) of the Income. Tax Act (Canada) (the "Act")
This is in reply to your letter of April 7, 1989 in which you requested a technical interpretation as to whether the above-noted paragraph of the Act would apply to the following situation.
XXXX
You requested our opinion on whether paragraph 110.6(7)(b) of the Act would apply to deny the capital gains deductions. It is your opinion that paragraph 110.6(7)(b) of the Act would not apply because consideration referred to in the paragraph is not the amount agreed upon (the "elected amount") referred to in subsection 85(1) of the Act. Also, you feel that paragraph 110.6(7)(b) would not apply to a simple rollover of capital property by an individual to a corporation.
The situation outlined in your letter involves actual contemplated transactions with identifiable taxpayers. The transactions should, therefore, be the subject of a request for an advance income tax ruling because assurance as to the tax consequences of contemplated transactions can only be obtained in the context of an advance income tax ruling. The procedures for making such a request are outlined in Information Circular 70-6R, dated December 18, 1978 and the related Special Release thereto. However, we are offering the following general comments.
We agree that the term "consideration" as referred to in paragraph 110.6(7)(b) of the Act does not mean the elected amount referred to in subsection 85(1) of the Act. Therefore, provided that the aggregate of the fair market value of any non-share consideration and the fair market value of shares received by a transferor upon the disposition of property under subsection 85(1) as part of a series of transactions or events is not significantly less than the fair market value of the property transferred, it is our view that paragraph 110.6(7)(b) of the Act would not apply. However, if the total consideration received by a transferor is significantly less than the fair market value of the property transferred in a transaction governed by section 85 of the Act, paragraph 85(1)(e.2) of the Act would apply in addition to paragraph 110.6(7)(b) of the Act.
The foregoing comments are not rulings and in accordance with the guidelines explained in information Circular 70-6R, are not binding on the Department.
Yours truly,
for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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