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.
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File: 921328 |
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Author: S. Shinerock |
VANCOUVER DISTRICT OFFICE ROUND TABLE
May , 1992
Question 3
a) Where, in the course of a butterfly reorganization, property of the particular corporation is transferred to a wholly-owned subsidiary (the "subsidiary") of a corporate shareholder of the particular corporation, is it necessary for the subsidiary to be wound up into the corporate shareholder in order to comply with the provisions of paragraph 55(3)(b) of the Act?
b) Also, in light of the decision of the Federal Court of Appeal in the Guaranty Properties case (90 DTC 6363), does Revenue Canada now accept that the amalgamation of the subsidiary and the shareholder following the transfer of the property of the particular corporation to the subsidiary would comply with the requirements of paragraph 55(3)(b) of the Act?
Department's Position
a) Since, in the situation described above, it is assumed that the subsidiary does not own any shares of the particular corporation immediately before the property transfer, it is our position that the transfer of property to the subsidiary will not comply with paragraph 55(3)(b) unless the subsidiary is wound up into the shareholder following the transfer of property to it. In these circumstances, the transfer of property to the subsidiary is part of an indirect transfer of property of the particular corporation to the shareholder.
Where, however, the particular corporation has transferred some or all of its shares of the particular corporation to the subsidiary prior to the transfer of property by the particular corporation to the subsidiary, it is our view that this transfer of property will not comply with paragraph 55(3)(b) if the subsidiary is wound up into the shareholder. The winding-up of the subsidiary in this situation would also constitute an indirect transfer of property of the particular corporation to the shareholder and the pro rata test in paragraph 55(3)(b) would not be met in respect of the indirect transfer to the shareholder.
b) The Department is presently studying the decision in the Guaranty Properties case. In the meantime, however, it remains our view that a transfer of property by a particular corporation to a wholly-owned subsidiary of a shareholder corporation, followed by an amalgamation of the subsidiary and the shareholder corporation would not comply with paragraph 55(3)(b).
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© Her Majesty the Queen in Right of Canada, 1992
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