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Jones 5-8642 Subsection 85(1) of the Income Tax Act (the "Act") Impact of deferred tax liability on fair market value Attached for your review are: 1. a copy of an enquiry letter from 19(1) dated August 24, 1989; 2. a copy of the opinion letter to 19(1) referred to in the 19(1) 3. a draft response to the 19(1) enquiry in which we take the position that: (a) the tax position of the vendor is irrelevant in determining the fair market value of the property for the purposes of subsection 85(1) of the Act; and (b) the deferred tax liability of the vendor cannot be "assumed" by the purchaser as a part of the consideration for the transferred property. ... May we have your comments on the position we propose to take with respect to the impact of a deferred tax liability of the vendor on the determination of the fair market value of a property for the purposes of subsection 85(1) of the Act in the situation under consideration? ...

Consideration of requests of this nature involves an extensive and fully objective review of the facts of the particular situation and a careful evaluation of the merits of the request to ensure a fair and uniform application of established criteria. ... I wish to assure you that you will receive the utmost consideration possible in the resolution of your case. ...

Paragraph 3 of the Bulletin defines a gift, for purposes of the Income Tax Act as "a voluntary transfer of property without consideration". ... No valuable consideration or benefit of any kind to the donor, or anyone designated by the donor, may result from the payment. ...

A Co. will transfer capital assets, electing adjusted cost base, to B Co. receiving as consideration common shares of B Co. ... However, notwithstanding that fair market value consideration must be received so as to avoid the possible application of paragraph 85(1)(e.2) of the Act the Department is prepared on a case-by-case basis to rule that the provisions of the above paragraph would not be applied where equity is preserved. ...

The vendor of the shares will have received a "right" as consideration for his shares which would constitute "consideration other than shares" as described in paragraph 85.1(2)(d) of the Act. ...

Consideration of requests of this nature involves an extensive and fully objective review of the facts of the particular situation and a careful evaluation of the merits of the request to ensure fair and uniform application of established criteria. ... I wish to assure you that you will receive the utmost consideration possible in the resolution of your case. ...

They mean the amount of tax payable under the provincial Act but for sections 120.1, 121 and 122.3 of the federal Act which are to be taken into consideration, so that the amount of provincial income tax for the calculation could be greater. ... Should someone ask that these other items be taken into consideration, then the request should be respected. ...

Consideration of requests of this nature involves an extensive and fully objective review of the facts of the particular situation by senior departmental officials in Head Office. ... I wish to assure you that he will receive the utmost consideration possible in the resolution of his case. ...

In the situation set out in your memo, the taxpayer rolled depreciable property under section 85 and elected and received non-share consideration in an amount equal to the undepreciated capital cost of the depreciable property. ... Present policy is that the consequent increase to the agreed amount is to be reflected in the ACB of the shares rather than non-share consideration (e.g., shareholder's loan). ...

We do not concur with your view that the property transferred consists only of the transferor's equity in the property and the payment of the balance of the purchase price by the holding company does not constitute a consideration of the sale. It is our opinion that the property transferred is the shares and the assumption of the debt by the holding company constitutes part of the consideration of the sale. ...