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.
DECISION SUMMARY
Corporate Reorganization Section
K. H. Major
November 29, 1985
Decision Summary 3061-1 dated May 30, 1983 is hereby revised in accordance with a decision of the Review Committee on October 18, 1985.
Reference: Subparagraph 40(1)(a)(iii) Subsections 84(3) and 55(2)
Subject: Reserve - Deemed Capital Gain
Problem: Can a shareholder claim a reserve under subparagraph 40(1)(a)(iii) when his shares are redeemed in exchange for a promissory note payable in the future and; pursuant to the application of subsection 55(2) to the resulting subsection 84(3) deemed dividend, he is deemed to have a capital gain on the redemption.
Position:
1. Yes, if the promissory note is considered conditional payment for the shares.
2. No, if the promissory note is considered as absolute payment for the shares.
Comments:
A. This position is consistent with paragraph 3 of IT-436
B. On October 18, 1985 the Review Committee accepted that 84(3) applied where the promissory note was considered as conditional payment for the shares.
C. Whether or not a promissory note is considered as conditional payment or absolute payment is a question of fact.
Chief Foreign & Small Business Section Reorganizations and Non-Resident Division; Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1985
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© Sa Majesté la Reine du Chef du Canada, 1985
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