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 D. Holtz (613) 995-1178
XXXX
May 30, 1985
Dear Sirs:
Re: Subsections 85(5.1) and 111(5.1)
This is in reply to your letter of March 5, 1985 wherein you requested our interpretation of the above-referenced subsections in a particular situation.
Our understanding of the circumstances is as follows:
1. Company A is a Canadian corporation which owned certain depreciable property with a fair market value less than both the cost and the proportionate amount referred to in subsection 85(5.1) of the Act.
2. Company A incorporated Company B (a wholly-owned Canadian subsidiary) and sold the property to Company B at fair market value.
3. Company A then sold the shares of Company B to Company C, which did not control either A or B prior to the acquisition.
4. Company B then sold the property to Company C at fair market value which had not changed.
In your opinion, subsection 85(5.1) would be applicable on the sale of the property from Company A to Company B, such that Company B would "take over" Company A's tax values of the property and the loss to Company A would be denied. You are also of the opinion that when Company C acquires control of Company B, subsection 111(5.1) applies to deem the excess of the U.C.C. over the fair market value of the property to be a non-capital loss of Company B of the preceding year. Consequently, on the subsequent sale of the property by Company B to Company C, no loss will arise because the U.C.C. equals the fair market value of the property.
In a given factual situation, the above-noted subsections may produce the results which you suggest. However, that may not always be the case, as consideration of all relevant factors may lead to a completely different conclusion.
As your letter indicates a factual situation, we are unable to respond to your request without a full disclosure of all of the relevant facts and documents.
Should you wish to pursue your request further, we suggest that you provide us with the appropriate information.
Yours truly,
Chief Corporate Reorganizations Section Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch
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