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.
XXXX
M. Evans 593-7295
June 3, 1981
Dear XXXX
This will reply to your letter of April 14, 1981, in which you refer to a verbal opinion given by Mr. Jerry Pembroke of this office that after a divorce a taxpayer and his former wife are dealing at arc's length. In this connection, you wish to know if a loss incurred in the following circumstances is a business investment loss pursuant to paragraph 39(1)(c) of the Income Tax Act (the "Act"):
XXXX
We confirm that after the divorce the taxpayer and his former wife are not related for purposes of the Act but wish to advise that paragraph 251(1)(b) of the Act states "it is a question of fact whether or not persons not related to each other were at a particular time dealing with each other at arm's length". Assuming they are dealing at arm's length, the sale of the shares, if they are shares of a Canadian-controlled private corporation, by the taxpayer to his former wife at fair market value, would result in a business investment loss to the taxpayer under subparagraph 39(1)(c)(ii) of the Act. Alternatively, if the corporation becomes bankrupt during a year within the meaning assigned by the Bankruptcy Act, paragraph 50(1)(b) of the Act would deem the taxpayer to have disposed of the shares at the and of that taxation year and to have reacquired them immediately thereafter at a cost equal to NIL which would entitle him to claim a business investment loss under subparagraph 39(1)(c)(i) of the Act.
In view of the fact that at the time of the sale of the non-interest bearing notes the vendors and the purchaser were not dealing at arc's length, it will be a question of fact whether or not the taxpayer's notes then had a fair market value of XXXXIf the notes were uncollectible at the time of their sale s corporation which at that time and now bad no other assets, the value of the shares issued may be NIL. In this case, there would be no capital loss realised on the disposition of the shares and thus no business investment loss could be claimed.
We are also concerned that there may be other facts of which we are not aware and therefore remind you that this letter is an expression of an opinion only and as such is not binding on this Department.
We trust the above comments will be of assistance to you.
Yours truly,
Original signed by Original signe par
C.B.DARLING for Director Non-Corporate Rulings Division
50(1) 39(1)
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