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 August 21, 1981 concerning the making of a "relevant cost base" claim pursuant to paragraph 95(4)(c) of the Income Tax Act (the "Act").
The situation with which you are concerned is as follows:
1) Canco owns all the shares of the capital stock of FA-1
2) FA-1 owns all the shares of the capital stock of FA-2 and all the shares of the capital stock of FA-3.
3) FA-1, FA-2 and FA-3 are controlled foreign affiliates of Canco.
4) The taxation year of FA-1 ends on June 30th of each year.
5) The taxation year of Canco ends on December 31st of each year.
6) During its taxation year ending June 30, 1980, FA-2 is merged with FA-3 to form Mergeco. Shares of the capital stock of Mergeco are the only consideration received by FA-1, as a result of the merger and immediately after such merger Mergeco is a foreign affiliate of Canco.
7) In filing its income tax return for its taxation year ending December 31, 1980 Canco did not claim (under 95(2)(d)(iv) and 95(4)(c) of the Act) a relevant cost base greater than the ACB to FA-1 of the FA-2 and FA-3 shares.
8) During its taxation year ending June 30, 1980, FA-1 sold the Mergeco shares.
9) During the period in which it could file a notice of objection, in respect of its taxation year ending December 31, 1980 Canco writes a letter (to the Director of the District Taxation Office in which it files its income tax return) claiming,
a) in respect of the FA-2 shares, a relevant cost base greater than the aggregate ACB to FA-1 of such FA-2 shares; and
b) in respect of the FA-3 shares, a relevant cost base greater than the aggregate ACB to FA-1 of such FA-3 shares.
In these circumstances, it is our view, that the greater amount (if claimed in the manner described in 9 above) would be accepted by the Department provided that it does not exceed the fair market value of the shares at the time of the merger as required by paragraph 95(4)(c) of the Act.
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© Her Majesty the Queen in Right of Canada, 1981
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© Sa Majesté la Reine du Chef du Canada, 1981
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