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.
Tax Executives Institute
Question X
Where, as part of a series of transactions, a person (the "vendor") disposes of property for proceeds of disposition that are less than its fair market value, and it may reasonably be considered that one of the main purposes of the series was to obtain the benefit of any deduction in computing income or taxable income, or the benefit of any balance of undeducted outlays, expenses or other amounts available to a person (the "purchaser") who was not related to the vendor immediately before the series of transactions commenced, then in respect of a subsequent disposition of the property (by the purchaser) within three years after the vendor disposed of the property, subsection 69(11) of the Act deems the vendor to have disposed of the property for proceeds of disposition equal to its fair market value.
What is the position of Revenue Canada on the application of subsection 69(11) in circumstances where the vendor disposes of the property pursuant to a purchase butterfly, the purchaser subsequently disposes of the property within three years following the completion of the butterfly, but the vendor was not aware of the purchaser's intention to dispose of the property in that period?
Department's Position
It is a question of fact whether the subsequent disposition of the property by the purchaser was part of a series of transactions, within the meaning of subsection 248(10) of the Act, which included the purchase butterfly. Also, whether it may reasonably be considered that one of the main purposes of the series was to obtain the benefit of any deduction in computing income or taxable income, or the benefit of any balance of undeducted outlays, expenses or other amounts available to the purchaser, can only be determined following a review of all of the relevant facts pertaining to a particular situation.
The Department is not prepared to concede that the subsequent sale by the purchaser was not part of such series. You may wish to refer to the Department's comments on the phrase "series of transactions" on pages 7:6 and 7:7 of the 1988 Conference Report for our views on this aspect of the application of subsection 69(11) of the Act.
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