Search - consideration

A sold shares of Opco to a son and daughter in consideration for promissory notes that were non-interest bearing and repayable in annual instalments, the cost of the Opco shares acquired by the son and daughter were equal to the fair market value of the promissory notes, which was lower than the fair market value of the Opco shares. CCRA stated that: "In various 'butterfly' rulings... we generally accept, as a statement of fact from the particular taxpayer, that a non-interest bearing note that is payable on demand and issued as consideration for certain property acquired by the taxpayer may have a fair market value equal to its stated principal amount. ...

CRA considers that: “[R]evenue” under normal accounting practices generally requires the satisfaction of certain performance obligations, such as the sale of goods or the performance of services that would typically result in a corresponding inflow of cash, accounts receivables or other consideration. CRA applied this test to find that the “revenue reported by the entity under the percentage of completion method would generally be considered ‘qualifying revenue’,” whereas mark-to-market valuation adjustments made by to the carrying value of investments by investment and brokerage firms would not give rise to an “inflow of cash, receivables or other consideration” under the above test, so that such (unrealized) gains or /losses would not affect qualifying revenue. ...

DC will transfer a proportionate share (based on the relative fair market value of the shares in its capital held by the particular TC): of its common shares and Class B shares of Aco, as well as its "Fund Units" to each of the five TCs in consideration for Class X preferred shares of that TC; of its Series A and B preferred shares of ACo to each TC in consideration for a non-interest-bearing Note1 of the respective TC; and of cash to each TC in consideration for a non-interest-bearing Note2 of the respective TC. ...

In some of these arrangements, the facts have led to a conclusion that the trust acquired the shares for fair market value consideration (perhaps by transferring cash to Corp B on the acquisition of the Corp A shares from it).... CRA agrees with the general proposition that where property is transferred to a trust by a beneficiary for fair market value consideration, subsection 75(2) will not apply to attribute income in respect of that property to the beneficiary. In the alternative, if the facts are such that it may be concluded that the trust did not acquire the shares for fair market value consideration, CRA will typically challenge the arrangement on other grounds. ...

2013 Ruling 2013-0490341R3- No-type of property spin-off butterfly-- summary under Distribution Summary Under Tax Topics- Income Tax Act- Section 55- Subsection 55(1)- Distribution s. 55(3.02) public spin-off of CFAs to new sister TC with post butterfly FX loan by TC to DC; new public corp inserted above DC before b/f Preliminary As a preliminary step under a plan of arrangement, the shareholders of Old Pubco (a Canadian public corporation dealing at arm's length with each shareholder) will transfer (in a s. 85.1 exchange) all their Old Pubco common shares to a newly-incorporated Canadian subsidiary of Old Pubco (New Pubco) in consideration for New Pubco common shares, and New Pubco will reduce the stated capital of its shares (in order to satisfy the solvency test for any future dividends). ... Old Pubco will transfer to Newco the Spin-off Properties (being shares of various non-resident subsidiaries) in consideration for the issuance of the Newco Preferred Shares, electing under s. 85(1). ... " Newco will redeem "from Old Pubco" all of the issued and outstanding Newco Preferred Shares, and Old Pubco will redeem "from Newco" all of the outstanding Old Pubco New Preferred Shares, in each case in consideration for issuance of a non-interest-bearing demand promissory note. ...

Pubco will acquire an undivided percentage interest in the Royalty from Partnership D in consideration for the issuance of a demand promissory note (the "Royalty Purchase Note"), with the proceeds being allocated by Partnership D to its partners (Subco and Pubco.) Subco will transfer its interest in Partnership D and other "Distributed Assets" to a newly-incorporated subsidiary of Pubco (Newco 1) in consideration for redeemable preferred shares of Newco 1 with a price adjustment clause and with a s. 85(1) election made. ... Subco will redeem the preferred share issued to Pubco in 1 in consideration for transferring the Newco 1 Note and for issuing a further Note, with a contemporaneous eligible dividend notice. ...

Newco redeems its preferred shares in consideration for the “Newco note”. Opco redeems the shares that Newco received in step 2 in consideration for the issuance to Newco of the “Opco note”. ... Newco redeems the shares that it issued to Opco in step 1 in consideration for the “Newco note”. ...

The annual rate of dividend on such shares (expressed as a percentage of the consideration for which they were issued) of 6% was higher than the prescribed rate of interest at the time of the issuance of the shares in Years 1 and 4 – although the corporation amended its articles after Year 4 and before Year 13 to reduce the dividend rate to 1%, which was the prescribed rate in Year 13 and less than the prescribed rate in Years 1 and 4. ... Would the situation be remediated if the shareholder effected a s. 51 exchange of such Class A shares for Class B shares with the same attributes except for the fixed annual dividend rate (as a percentage of the fair market value of the consideration for which the shares were issued) equalling the prescribed rate at the time of the exchange? ... Thus, depending on the facts, the fixed annual dividend rate, expressed as a percentage of the fair market value of the consideration for the issuance of the Class B shares, would not exceed the prescribed rate of interest on the issuance of the Class B shares. ...

Application of life insurance proceeds Within a year of the death, PCo purchased for cancellation a portion of its common shares held by the Estate (which had been stepped up under s. 70(5)(b)) in consideration for a note, elected under s. 83(2) on the resulting deemed dividend and used the insurance proceeds and other cash to repay the note. ... The Estate will transfer its remaining PCo Shares (electing under s. 85(1)) to Newco in consideration mostly for a note (the “Newco Note”) with a principal amount and FMV equal to the lesser of such shares’ current FMV and their FMV on A’s death, minus $100. As additional consideration, it also will receive 100 Class A Newco Preferred Shares with a stated capital of $100, and a redemption value and FMV of $100 plus any appreciation in the remaining PCo Shares from A’s death to such transfer date. ...

The Directorate indicated that: CRA generally does not assess a s. 105 benefit arising from the use of the personal-use property by a beneficiary or person related to the beneficiary – but this administrative position would not extend to use of the property by an unrelated person, who would be required to include a benefit under s. 105(1) based on rent for comparable property, less any consideration paid for the use of the property (subject to the comments in IT-432R2, para. 11 as to computation of the benefit). ... X’s spouse, and that property is made available to the corporation’s shareholder, CRA indicated that the benefit question 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. ...