Search - consideration

…[Scenario #4] The FTS holder acquires the FTS after the amalgamation agreement has been entered into, and the FTS holder decides to dissent from the amalgamation and receives a cash payment in consideration for the FTS. In this case, the requirement in subparagraph 87(4.4)(d)(i) has not been met and the dissent right also creates a prescribed-share issue because the FTS subscriber can get the FTS consideration back. ...

Kim Maguire, Jeffrey Shafer, "Trends in Buy/Sell Transactions", draft 2021 Conference Report-- summary under Paragraph 12(1)(g) Summary Under Tax Topics- Income Tax Act- Section 12- Subsection 12(1)- Paragraph 12(1)(g) Whether s. 12(1)(g) can apply to a share sale (p. 3) Since most contingent consideration for a share sale will relate to earnings or other contingent amounts “inside” the subject corporation, but not income earned on the sold shares, it could be argued based, e.g., on Wain-Town, 50 DTC 856 (Ex Ct) [rev’d by SCC] (which found that contingent payments from a sold franchise were not taxable under an s. 12(1)(g) because the payments were based on the use of another property) that s. 12(1)(g) would not apply to the sale proceeds. Use of purchaser special shares and s. 85(1) election in lieu of cash earnout (pp. 4-5) S. 12(1)(g) issues can be avoided by embedding the contingent payment terms in the provisions of special shares of the purchaser, whose retraction terms reflect the economics of the agreed contingent consideration. ...

.-- summary under Illegality Summary Under Tax Topics- General Concepts- Illegality Prohibition by jurisdiction (pp. 85-6) [I]n Saskatchewan, Manitoba, New Brunswick, and Newfoundland…a promissory note cannot be given as consideration for the issuance of shares under any circumstances.… In Alberta, Ontario, and under the CBCA, the restriction only applies to promissory notes issued by the subscriber or a person who does not deal at arm's length with the subscriber… [A] subscriber could pay for shares with a promissory note issued by an arm's length party. … [I]n British Columbia, the restriction only applies to "a record evidencing indebtedness of the person to whom shares are to be issued" (i.e., a promissory note issued by the subscriber)…. ... Consequences of breach: invalid share issuance (pp. 86-7) The case law is divided on what results when shares are issued for less than adequate or no consideration. ... Ct.),,,] In Welling's view, the use of the phrase " shall not be issued" in s. 25(3) of the CBCA (and its provincial equivalents) means that inadequate consideration results in a nullity as between the issuer corporation and the registered holder. ...

.-- summary under Paid-Up Capital Summary Under Tax Topics- Income Tax Act- Section 89- Subsection 89(1)- Paid-Up Capital Prohibition by jurisdiction (pp. 85-6) [I]n Saskatchewan, Manitoba, New Brunswick, and Newfoundland…a promissory note cannot be given as consideration for the issuance of shares under any circumstances.… In Alberta, Ontario, and under the CBCA, the restriction only applies to promissory notes issued by the subscriber or a person who does not deal at arm's length with the subscriber… [A] subscriber could pay for shares with a promissory note issued by an arm's length party. … [I]n British Columbia,, the restriction only applies to "a record evidencing indebtedness of the person to whom shares are to be issued" (i.e., a promissory note issued by the subscriber)…. ... Consequences of breach: invalid share issuance (pp. 86-7) The case law is divided on what results when shares are issued for less than adequate or no consideration. ... Ct.),,,] In Welling's view, the use of the phrase " shall not be issued" in s. 25(3) of the CBCA (and its provincial equivalents) means that inadequate consideration results in a nullity as between the issuer corporation and the registered holder. ...

She agreed to relinquish her income interest for consideration provided by the sons—namely, a contractual undertaking to pay her a fixed dollar amount per year for life. ... [S]ubsection 106(2)…is intended to apply to situations in which an income beneficiary voluntarily transfers an income interest to a third party (the acquiror) for consideration (or deemed consideration in the case of a gift), following which the acquiror becomes eligible to receive the income that would otherwise have been distributed by the trust to the transferor. ... As explained in McKenzie, the purpose of subsection 106(2), consistent with the general scheme of tire Act, is to tax economic gains realized by an income beneficiary on the transfer of its trust interest to a third party for consideration. ...

[fn 93: See… 2015-0582701E5 …and… 2004-0062121E5] Accordingly, in many circumstances it may be more efficient, subject to applicable foreign tax considerations, for a non-resident trust to realize an actual disposition of the property before the distribution. … The sole purpose of the election is to enable the beneficiary to acquire the distributed property at a cost equal to its fair market value,…[T]his purpose can be achieved in a variety of other ways, such as an actual disposition of the property (for example, a transfer to a wholly owned subsidiary of the trust) before the distribution, or even a sale of the property to the beneficiary in consideration for a promissory note, which is subsequently set off against a capital distribution made by the trust to the beneficiary. ...

[F]oreign Pubco, Foreign Spinco, and the TC enter into a three-party share exchange agreement as follows: 1) Foreign Pubco transfers the DC shares directly to TC as consideration for the shares of Foreign Spinco issued in step 3. 2) The TC issues common shares to Foreign Spinco as consideration for the DC shares. 3) As consideration for the TC shares, Foreign Spinco issues shares to Foreign Pubco. 3-party exchange as permitted exchange (pp. 29:14-16) These steps...avoid the transitory acquisition of the DC shares by Foreign Spinco, which would otherwise qualify Foreign Spinco as a TC under paragraph 55(3.2)(h). ... Instead, the only requirement is that the transferor (Foreign Pubco) receive shares of the acquiror as consideration for the transfer of the DC shares.... ... Because the three-party share exchange is structured to ensure that the transferor (Foreign Pubco) does not receive the share consideration directly from TC, it may be difficult to take a seemingly opposite position in the context of subsection 85(1). ...

Subparagraph 88(1)(c.4)(ii) was amended to extend to indebtedness issued for consideration that consists solely of money…. ... The deemed acquisition of the Amalco debt on the amalgamation does not appear to fit squarely into the definition of specified property as the Amalco debt is not issued as consideration for the acquisition of the Target shares, and it is not clear whether it continues to be issued solely for money. ...

Each Holdco redeems the preferred shares owned by Newco in consideration for the shares of Target. ... The individual shareholders then sell the shares of Newco to the purchaser in consideration for cash. ...

For example, under a s. 85(1) rollover transaction where the transferor taxpayer takes back less than fair market value consideration, the existing rules contemplate an upward adjustment to the elected amount under s. 85(1)(e.2), subject to a safe harbour. ... Moreover, it is unclear whether under s. 247(2), the taxpayer would be deemed to receive additional boot, then it would appear to have additional consideration even in circumstances where the exceptions to s. 85(1)(e.2) would have applied – whereas if the transfer pricing adjustment was additional shares, then there would be no gain under s. 85(1)(e.2). ...