Search - consideration

Parnanzone (613) 957-9232 APR, 15 1987 Dear XXXX This is in reply to your letter of February 4, 1987 concerning: a) the date of disposition of property for purposes of subsections 85(1) and (2) of the Income Tax Act (the "Act") on incorporation of a farming business carried on as a proprietorship and partnership, respectively, and b) whether the redemption of the special shares received as consideration by the transferors would result in a capital gain or a dividend considering the effects of subsections 85(2.1) and 245(1.1), and section 247 of the Act on the transactions. ... The implication is that if the date of transfer of the property to the corporation is considered to be the date when the legal work was completed, the above tax provisions are either automatically applicable (subsection 85(2.1)) or may reasonably be considered to apply (subsections 245(1.1) and 247(1)) with the result that the redemption of the special shares consideration will give rise to i) an amount being included in income either as a taxable dividend or as property income, other than a taxable dividend, (subsections 247(1) or 85(2.1)) or ii) the taxable capital gains otherwise realized being denied the deduction under section 110.6 of the Act (subsection 245(1.1)). ... We are enclosing the following Departmental publications which you may find of assistance in determining on what date the transferors in your situations transferred the property to their corporations: Interpretation Bulletin IT-170R "Sale of Property- When Included in Income Computation" Interpretation Bulletin IT-220R "Capital Cost Allowance- Proceeds of Disposition of Depreciable Property" Interpretation Bulletin IT-460 "Dispositions- Absence of Consideration" Interpretation Bulletin IT-50R "Capital Cost Allowance- Date of Acquisition of Depreciable Property" As regards the application of subsections 245(1.1), 247(1) and 85(2.1) of the Act, we have the following additional comments to make. ...

Wilson 400 Cumberland Place, 8th Floor 957-2063 Attention: Rene Tapp HB4 1482-1 ANNUAL REVIEW OF GENERAL TAX GUIDE Further to your memorandum of April 23, 1990, we have reviewed the Guide from a provincial and international viewpoint, and offer the following comments: 1) Step 1- Identification Area Consideration should be given to adding the underlined words in the following sentence: "If you left Ontario before December 31, 1990 to live outside Canada but kept residential ties in Ontario you are Del a "factual" resident of Ontario. ... We are not convinced that the elimination of this "in and out" procedure simplifies matters because of the adjustments necessary for purposes of the child tax credit, federal sales tax credit and northern residents deductions 21(1)(b) 3) Line- 219- Moving Expenses Consideration should be given to tightening up the following sentence: "the move was from one place in Canada to another place in Canada (except deemed and factual residents, and students)" Under this present wording, all Canadian residents are excluded from the rule. ... Reference to "by Canada" may solve the problem. 6) Line 314- Pension Income Amount Consideration should be given to adding the following words to the sentence "pension payments from a pension plan that you receive as a life annuity,": "(including both domestic and foreign sources)" Our division has received several queries in the past regarding the eligibility of foreign pensions for the pension credit. ...

A private health services plan qualifying under subparagraph 110(8)(a)(i) or (ii) of the Act is a plan of insurance and, as such, the plan must contain terms and conditions specifying that it is an undertaking of one person to indemnify another person, for an agreed consideration, from a loss or liability in respect of an event the happening of which is uncertain. ... If the agreed consideration is in the form of cash premiums they usually relate closely to the coverage provided by the plan and are based on some method of computation involving actuarial or similar studies. ... The consideration given by the employee is considered to be the employee's covenants as found in the collective agreement or in the contract of service. ...

The issue of flow-through shares in the resource industry sector, the issue of shares as consideration for shares or other property, or the issue of shares on an amalgamation are among the circumstances which can lead to a difference between the amount initially calculated for corporate purposes and paid-up capital for income tax purposes. ... The stated capital account will reflect: (a) the par value of shared issued with a par value, (b) the amount ascribed by the directors for shares issued without par value or, in some jurisdictions, the fair market value of the consideration received for shares issued without par value, (c) a reduction for discounts granted (where permitted) for par value shares, and (d) a reduction for unpaid amounts (where permitted) for any issue. 4. ... Therefore, where a corporation has issued: (a) flow-through shares, (b) shares as consideration for shares or other property (see the current version of IT-291, IT-450 and IT-489), (c) shares as a result of an amalgamation (see the current version of IT-474), or (d) shares for tax-credit purposes, e.g., shares issued in connection with the Scientific Research and Experimental Development Tax Credit the potential exists that the paid-up capital for income tax purposes may be less than the stated capital reported on the financial statements. ...

You are concerned that, assuming that the preferred shares would otherwise be qualified small business corporation shares, such shares might not meet the requirements of the definition, pursuant to paragraph 110.6(14)(f) of the Act, if the shares are not considered to have been issued as consideration for other shares. ... Accordingly, and assuming that the hypothetical situation that you describe involves a section 86 reorganization, the preferred shares would be considered, for the purposes of paragraph 110.6(14)(f) of the Act, to have been issued to the daughter as consideration for other shares, that is, the common shares that were disposed of in the course of the reorganization. ... The significance of the changes is the determining factor in deciding whether shares have been disposed of and other shares have been issued as consideration for the shares disposed of. ...

However, in circumstances where it can be determined, on examination of all the facts, that the option is granted in consideration for services that are to be rendered after the time of grant and upon the fulfillment of a condition or contingency, the income should instead be recognized when the services are rendered, the amount is quantifiable and the rights are unrestricted. ... The determination of whether any incremental value realized on the exercise of the stock option represents business income or a capital gain can only be made after consideration of all the relevant facts and circumstances. Where the facts indicate that the incremental value represents part of the consideration received by the taxpayer for consulting services rendered, the incremental value should generally be treated as business income for purposes of the Act. ...

Generally, a plan will be considered a superannuation or pension fund or plan where contributions have been made to the plan by or on behalf of an employer or former employer of an employee in consideration for services rendered by the employee and the contributions are used to provide an annuity or other periodic payments on or after the employee's retirement in consideration for his or her employment services. ... First, one identifies potentially relevant factors connecting the property to a reserve and then one weighs the significance of each factor in light of three considerations: the purpose of the exemption from taxation, the type of property, and the nature of the taxation of that property. ...

Our Comments Consideration should first be given to the ability of the former spouse to have an RCA established by a holding company. ... Consideration should also be given to the combined effects of paragraphs 56(1)(x) and (z) and subsection 70(2) of the Act as they may apply in such a situation. ... For example, it may be found that the amount is being transferred as consideration for a disposition of some property. ...

As consideration therefor, Opco A issued to Canco a number of Opco A Common Shares having an aggregate FMV equal to the FMV of the 1 Opco B Common Share so transferred. ... On XXXXXXXXXX, Canco transferred all of its Opco A Common Shares to Newco in consideration for one Newco Common Share and three promissory notes issued by Newco, such consideration having an aggregate FMV equal to the aggregate FMV of the Opco A Common Shares. ... The purpose for the three Amalco Notes described in Paragraph 21 and three Canco Notes described in Paragraph 24 is that Foreign Pubco wanted the three notes (in each case) to have different maturity dates and interest rates, because of commercial considerations, and not for tax considerations in any country. ...

As consideration for the transferred properties, each of the transferees will: as partial consideration for the transferred properties, assume liabilities of XXXXXXXXXX in an amount not exceeding the aggregate of the amounts agreed upon in their respective election described in paragraph 28 below in respect of the transferred properties, and as the balance of the consideration for the transferred properties, issue to XXXXXXXXXX that number of its Class XXXXXXXXXX Preferred Shares which will have an aggregate fair market value and an aggregate redemption and retraction price equal to the amount by which the aggregate fair market value of the transferred properties exceeds the aggregate fair market value of the liabilities, if any, assumed as described in subparagraph 27. ... As consideration, XXXXXXXXXX will issue to XXXXXXXXXX a non-interest-bearing demand promissory note having a principal amount and fair market value equal to the aggregate of the agreed amounts as determined in paragraph 33 below and Class XXXXXXXXXX Preferred Shares with a nominal stated capital and with a fair market value and redemption amount equal to the difference between the fair market value of the transferred assets at the date of the transfer and the principal amount of the demand note issued as partial consideration for the transferred assets. ... As consideration, XXXXXXXXXX will issue to XXXXXXXXXX a non-interest-bearing demand promissory note having a principal amount and fair market value equal to the aggregate of the agreed amounts as determined in paragraph 35 below and Class XXXXXXXXXX Preferred Shares with a nominal stated capital and with a fair market value and redemption amount equal to the difference between the fair market value of the transferred assets at the date of the transfer and the principal amount of the demand note issued as partial consideration for the transferred assets. ...