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.
Dear Sirs:
This is in reply to your letter of March 11, 1987 concerning the application of paragraph 85(1)(e.2) of the Income Tax Act (the "Act") in the following situation:
XXX
Since the situation you describe relates to a contemplated transaction involving specific taxpayers, we consider it inappropriate to reply specifically thereto other than by way of an advance income tax ruling. In this regard, we refer you to the comments in Information Circular IC 70-6R. We are prepared however to offer the following general comments which, as indicated in IC 70-6R [Information Circular 70-6R], are not binding on the Department.
Where property is transferred from a corporation (the "seller") to another corporation (the "purchaser") and the seller receives consideration in an amount less than the fair market value of the transferred property, we will normally apply one or more of the benefit provisions of the Act such as subsections 15(1), 55(1), 56(2), 245(2) or paragraph 85(1)(e.2). However, if the identity and proportionate shareholdings of the seller and the purchaser are identical, in certain circumstances we will not apply these benefit provisions where the seller receives a minimum consideration from the purchaser in an amount less than the fair market value of the transferred property.
The minimum amount of consideration should in no case be less than the "cost amount", as defined in subsection 248(1) of the Act, of the transferred property. We may insist on a minimum amount of consideration in excess of the cost amount to ensure, amongst other things, that to the extent possible the appropriate gain will be realized on any sale of the shares of the seller or the purchaser after the transfer. The appropriate minimum amount of consideration can only be determined after a review of all the relevant facts.
Our position on this issue is currently under active review. Therefore, it would be prudent for taxpayers to apply for an advance income tax ruling where a transfer for consideration in an amount less than the fair market value of the property to be transferred is contemplated.
We trust that the above comments will be of assistance.
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© Her Majesty the Queen in Right of Canada, 1987
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© Sa Majesté la Reine du Chef du Canada, 1987
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