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Woolley (613) 957-2139 XXX Attention: XXX February 17, 1992 Dear Sirs: Re: Gift of Real Property This is in reply to your letter of January 9, 1992 wherein you requested our views on whether a taxpayer who donates real property with a substantial fair market value to a Canadian municipality, and receives consideration of $1, would be considered to have gifted the real property to the municipality if payment of such consideration was merely a legal formality to avoid adverse consequences with respect to land transfer tax. Our Comments It is our opinion as outlined in paragraph 29 of Information Circular IC 80-10R, dated December 17, 1985, that a gift is "a voluntary transfer of property without consideration. ... " Whether receiving nominal consideration disqualifies a transfer from being gratuitous, and accordingly "taints" the gift, is unclear from existing jurisprudence. ...

The Department does not require that the consideration received on such transfers be less than the fair market value of the property transferred nor do we require a reduction of the paid-up capital of any shares. Where the consideration includes shares of the Purchaser, we are often unable to rule that the provisions of subsection 55(2) of the Income Tax Act will not apply on the redemption of those shares. ... There may also be situations in which we are unable to give a favourable ruling in respect to the application of subsection 181(5) where fair market value consideration is received on a transfer. ...

Smith will hold only share consideration in AB Ltd. after the amalgamation. ... Smith will hold both share consideration in AB Ltd. and non-share consideration in the form of cash or debt of AB Ltd. after the amalgamation. ... Smith received consideration other than shares of AB Ltd. upon the amalgamation of A Ltd. and B Ltd. ...

Your client will receive consideration for entering into such agreement. 3. ... You requested our opinion as to whether the consideration received with respect to the non-competition agreement would also be considered U.S. source income for purposes of that subsection. ... We agree with your interpretation of section 42 of the Act with respect to the tax treatment of the consideration to be received with respect to the non-competition agreement. ...

You have queried whether a farmer may utilize a portion of his or her unused capital gains deduction, when transferring the farm land, without requiring the child to pay any consideration or only requiring the child to pay an amount which is less than the adjusted cost base of the land. ... If the property to be transferred is land and the actual proceeds of disposition (i.e. consideration) is any amount between the fair market value of the property and its adjusted cost base, then that amount is deemed to be the parent's proceeds of disposition and the cost of acquisition of that property to the child. While it is acceptable for the transfer to take place for no consideration (a gift), this means that the farmer cannot utilize any unused portion of the captial gains deduction. ...

In brief, a testamentary trust proposes to transfer land that it holds as capital property to a taxable Canadian controlled private corporation for nil consideration. ... You are concerned that subsection 110.6(7) of the Act will deny the beneficiaries such capital gains deductions because no consideration is to be paid for the property in question. ... Even though paragraph 69(1)(b) of the Act deems a taxpayer to have received proceeds of disposition equal to fair market value where the taxpayer disposes of property for no proceeds in a non-arm's length situation, property that was factually acquired for no consideration, that is, consideration significantly less than the fair market value of the property at the time of the transaction, will trigger the consequences of subsection 110.6(7) of the Act under which the capital gains deduction will be denied. ...

You also ash whether a right to receive these shares is necessarily assimilated to a consideration other than shares. ... Furthermore, such an interpretation would again lead to the ludicrous result of having consideration given by the subsidiary transferee corporation in the form of rights to receive shares not being accounted for at all, i.e. in either subparagraph 2XXXX(k)(ii) or (iii), for no apparent reason. To summarize, the fair market value of consideration given by the subsidiary transferee corporation which is either in the form of shares of another corporation or in the form of rights to acquire shares (of any corporation) must be taken into account in subparagraph 2XXXX(k)(iii) of the Act. ...

The grantor receives no consideration for granting the option. At the expiration of four years of the option period, when the property has a fair market value of $13,000, the option period is extended for another five years without any consideration being received by the grantor. ... In the first set of questions, you have asked as to assume that the grantee acquires the property for actual consideration equal to its fair market value of $18,000. 1. ... In the following set of questions, you have assumed that the grantee acquires the property for consideration equal to the stipulated option price of $10,000. 4. ...

The grantor receives no consideration for granting the option. At the expiration of four years of the option period, when the property has a fair market value of $13,000, the option period is extended for another five years without any consideration being received by the grantor. ... In the first set of questions, you have asked as to assume that the grantee acquires the property for actual consideration equal to its fair market value of $18,000. 1. ... In the following set of questions, you have assumed that the grantee acquires the property for consideration equal to the stipulated option price of $10,000. 4. ...

A number of older Canadian and English cases have ruled that the cost of the property to the corporation in such circumstances is the par value of the shares issued in consideration for the property, rather than their fair market value. ... You have informed us that where, for example, a parent company sells property to a subsidiary for fair market value consideration (which exceeds the parent's book or carrying value of the property), the accounting treatment of the sale to the subsidiary is that the subsidiary's cost of the asset is the parent's carrying value thereof and a debit is made to retained earnings in the amount of the difference between the fair market value of the consideration given up by the subsidiary and such carrying value. ... The parent's proceeds of disposition of the property for purpose of the Act would, however, be the fair market value of the consideration received in exchange therefor, subject to the application of specific provisions of the Act, such as subsection 85(1). ...