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.
Attention: XXX
Dear Sirs:
Re: Subsection 85(1) of the Income Tax Act
We are writing in response to your letter dated June 14, 1990 in which you requested the Department's views on whether subsection 85(1) of the Income Tax Act (the "Act") would apply to a series of transactions involving a share exchange in the course of a reorganization.
In particular, you ask whether the provisions of subsection 85(1) would apply in a situation where the holder of particular shares ("Mr. A") of the capital stock of a corporation ("Opco") transfers the particular shares to Opco for consideration that includes shares of Opco and that, even though all of the shares of a particular class were so transferred, the provisions of subsection 86(1) of the Act would not apply by virtue of the limitation provided in subsection 86(3) of the Act.
Assumptions
In formulating our reply we have made the following assumptions.
- i) Opco is a taxable Canadian corporation within the meaning of subsection 89(1)(i) of the Act.
- (ii) All the issued shares of the particular class of Opco shares are transferred.
- (iii) The share attributes of the particular shares of Opco received as consideration for the particular shares of Opco transferred are not identical.
- (iv) The amount by which the paid-up capital in respect of the class of shares issued by Opco has increased by virtue of the issuance of the shares on the transfer, is equal to the paid-up capital of the shares being transferred to Opco by Mr. A.
- (v) Pursuant to subsection 85(1) of the Act, Opco and Mr. A will jointly elect in prescribed form and within the time limit specified in subsection 85(6) of the Act, in respect of the transferred shares of Opco.
- (vi) The shares of Opco are capital property of Mr. A within the meaning of paragraph 54(b) of the Act.
Our Comments
It is our view, based upon the information provided and our assumptions as summarized above, that the provisions of subsection 85(1) of the Act would be applicable to the above summarized transaction and that by virtue of subsection 86(3) of the Act, the provisions of subsection 86(1) would not apply.
The foregoing comments represent our general views with respect to the subject matter of your letter, are not rulings and, in accordance with the guidelines set out in Information Circular 70-6R dated December 18, 1978, are not binding on the Department.
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© Her Majesty the Queen in Right of Canada, 1990
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© Sa Majesté la Reine du Chef du Canada, 1990
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