Search - consideration

Would the proceeds of disposition of the policy be determined on the basis that no consideration was given for the transferred policy? CRA responded that s. 148(7)(a) applied to deem Holdco: to have become entitled to receive proceeds of disposition equal to $240,000 (the greater of (i) the cash surrender value of the interest ($240,000), (ii) the FMV of any consideration for the interest (N/A), and (iii) the ACB of the interest to Holdco ($200,000).) ...

After stating that “[s]ince a corporation does not own its own shares prior to their issuance, it follows that the issuance of shares by a corporation to a trust for consideration equal to their FMV generally does not constitute a transfer of property to which subsection 75(2) could apply,” CRA went on to state: [T]o the extent that such a scenario does not contravene applicable corporate and trust law and that the Trust subscribed for shares of Opco and Newco for consideration equal to their FMV, it appears to us that the issuance of shares by Opco and Newco would not constitute a transfer of property to which subsection 75(2) would likely apply. ...

., including both the immediate non-resident parent (Foreign SpinCo Sub) and non-resident grandparent (Foreign SpinCo) of TC in a circular exchange of consideration- so that TC issued its shares to Foreign SpinCo Sub in consideration for the acquisition of special shares of DC from DC's non-resident parent (Foreign Sub 5). ...

28 October 2016 External T.I. 2016-0654331E5 F- Transfer of rights to income-- summary under Subsection 56(2) Summary Under Tax Topics- Income Tax Act- Section 56- Subsection 56(2) s. 56(2) could apply to shareholder of purchaser of lands if vendor did not pay FMV consideration for retaining rights to rents Upon a sale by A of leased land to a non-arm’s length corporation (Corporation A) in which A did not hold any shares, A and Corporation A agreed to a redistribution of income in which Corporation A undertook to pay to A all the related rental income. ... Thus, all the criteria for taxation of the shareholder of Corporation A under subsection 56(2) may be satisfied if the right to income was not disposed of for consideration equal to its fair market value. ...

(iii)(B) of Paragraph N that “the disposing corporation [FA1] receives no consideration for the share [of FA2] other than property that was, immediately before the merger, owned by the issuing corporation [FA2] and that, on the merger, becomes property of the new corporation [FA1].” ... [Thus] the property of FA3 would be received by FA1 as consideration for the shares of FA2. ...

Proposed transactions After the transfer of certain assets by it to a newly-incorporated corporation (Newco) under s. 85(2) in consideration for the assumption of liabilities and the issuance of Newco shares, and in connection with a wind-up of the partnership as described in s. 98(3), GP and Holdco II will assume, pro-rata to their respective interest in the Partnership, the Partnership's obligations, including the Deferred Revenue obligations. As consideration for the assumption of the Partnership's Deferred Revenue obligations, the Partnership will transfer to each of GP and Holdco II an undivided interest in Newco shares owned by the Partnership having a fair market value equal to the amount of the Deferred Revenue, with a joint s. 20(24) election being made. ...

CRA indicated that this turned on whether (i) the trust specifically granted a right to use the property to the corporation, with such newly-created property then being distributed for not consideration by the corporation its shareholder without consideration, or (ii) the trust allowed the shareholder to use the property held by the trust. ...

CRA responded: [S]ubsection 75(2) should not apply where a trust subscribes for shares of a corporation for consideration equal to their fair market value ("FMV"), notwithstanding that the corporation issuing the shares is or may become a beneficiary of the trust or has any of the powers described in subparagraph 75(2)(a), notwithstanding that the corporation issuing the shares is or may become a beneficiary of the trust or has any of the rights described in subparagraph 75(2)(a)(ii) or paragraph 75(2)(b). ... Since a corporation does not own its own shares before they are issued, it follows that subsection 75(2) will not apply to a corporation that issues shares to a trust for consideration equal to their FMV. ...

Under the ruled-upon transactions: The Holdco shareholders transfer a portion of their Holdco common shares on a s. 85(1) rollover basis to Opco in consideration for tracking preferred shares of Opco; The key employee immediately purchases those Holdco common shares from Opco in consideration for five annual instalments, with each annual instalment based on the most recent year’s earnings (plus, in the case of the first instalment, the opening shareholders’ equity), with adjustments to the purchase price on any IPO or business acquisition; and Each instalment payment is immediately dividended by Opco to the Holdco shareholders on the tracking preferred shares. ...

They jointly incorporate Holdco, transfer all their Opco shares on a s. 85(1) rollover to Holdco in consideration for Holdco pref shares, Opco transfers to Holdco its Subco shares in consideration for pref shares of Holdco on a s. 85(1) rollover basis, Holdco redeems those prefs for a note, which note is then extinguished by Opco transferring the note to Holdco as a dividend-in-kind. ...