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(iii)(B) of Paragraph N that “the disposing corporation [FA1] receives no consideration for the share [of FA2] other than property that was, immediately before the merger, owned by the issuing corporation [FA2] and that, on the merger, becomes property of the new corporation [FA1].” ... [Thus] the property of FA3 would be received by FA1 as consideration for the shares of FA2. ...

Proposed transactions After the transfer of certain assets by it to a newly-incorporated corporation (Newco) under s. 85(2) in consideration for the assumption of liabilities and the issuance of Newco shares, and in connection with a wind-up of the partnership as described in s. 98(3), GP and Holdco II will assume, pro-rata to their respective interest in the Partnership, the Partnership's obligations, including the Deferred Revenue obligations. As consideration for the assumption of the Partnership's Deferred Revenue obligations, the Partnership will transfer to each of GP and Holdco II an undivided interest in Newco shares owned by the Partnership having a fair market value equal to the amount of the Deferred Revenue, with a joint s. 20(24) election being made. ...

CRA indicated that this 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. ...

CRA responded: [S]ubsection 75(2) should not apply where a trust subscribes for shares of a corporation for consideration equal to their fair market value ("FMV"), notwithstanding that the corporation issuing the shares is or may become a beneficiary of the trust or has any of the powers described in subparagraph 75(2)(a), notwithstanding that the corporation issuing the shares is or may become a beneficiary of the trust or has any of the rights described in subparagraph 75(2)(a)(ii) or paragraph 75(2)(b). ... Since a corporation does not own its own shares before they are issued, it follows that subsection 75(2) will not apply to a corporation that issues shares to a trust for consideration equal to their FMV. ...

Under the ruled-upon transactions: The Holdco shareholders transfer a portion of their Holdco common shares on a s. 85(1) rollover basis to Opco in consideration for tracking preferred shares of Opco; The key employee immediately purchases those Holdco common shares from Opco in consideration for five annual instalments, with each annual instalment based on the most recent year’s earnings (plus, in the case of the first instalment, the opening shareholders’ equity), with adjustments to the purchase price on any IPO or business acquisition; and Each instalment payment is immediately dividended by Opco to the Holdco shareholders on the tracking preferred shares. ...

They jointly incorporate Holdco, transfer all their Opco shares on a s. 85(1) rollover to Holdco in consideration for Holdco pref shares, Opco transfers to Holdco its Subco shares in consideration for pref shares of Holdco on a s. 85(1) rollover basis, Holdco redeems those prefs for a note, which note is then extinguished by Opco transferring the note to Holdco as a dividend-in-kind. ...

28 October 2005 External T.I. 2005-0145891E5 F- Redemption of Shares- Balance of Purchase Price-- summary under Subsection 84(3) Summary Under Tax Topics- Income Tax Act- Section 84- Subsection 84(3) amount of deemed dividend arose on redemption date based on amount of covenanted future redemption payments On January 1, 2005, Canco purchases for cancellation 100 common shares, having a fair market value of $100,000, in consideration for paying $25,000 per annum during the four following years to the redeemed shareholder (“Shareholder”). ... CRA responded: … [T]he amount of the deemed dividend at the time of the purchase for cancellation of the shares of the capital stock of Canco on January 1, 2005 would be equal to the value of any consideration given by Canco and received by the Shareholder for the Shareholder’s shares of the capital stock of Canco at the time of the purchase for cancellation of such shares, including any covenants or promises to pay amounts in the future, that would be in excess of the paid-up capital in respect of such shares. ...

Upon the Partnership dissolution, Opco cancelled the preferred shares held by Partnership for no consideration. ... CRA stated: Opco cancelled, for no consideration, the preferred shares of its capital stock held by Partnership. ...

Approximately two years later, the LP transferred its property (the flow-through shares) on s. 85(2) rollover basis to a variable capital investment company ("SIVAC") in consideration for common shares of SIVAC, and LP was then wound-up under s. 85(3), so that the SIVAC shares of LP were distributed to the limited partners, including the Taxpayer. ... The computation of the Taxpayer's ACB for the Taxpayer’s interest in LP, which would be a capital property, should be in as set out in paragraphs 53(1)(e) and 53(2)(c) (taking into consideration, among other things, subsection 66.8(1) et seq.) and could, depending on the circumstances, be other than nil. ...

3 August 1994 External T.I. 9108855- WITHHOLDING TAX COMPUTER SOFTWARE ROYALTIES-- summary under Subparagraph 212(1)(d)(vi) Summary Under Tax Topics- Income Tax Act- Section 212- Subsection 212(1)- Paragraph 212(1)(d)- Subparagraph 212(1)(d)(vi) An arrangement whereby Canco is licensed by USco the right to produce or reproduce computer software in consideration for a royalty based on the number of copies of software made, and Canco enters into a services agreement with USco under which Canco subcontracts to USco the physical reproduction of the software for cost plus a small mark up, is viewed by RC as representing in substance the acquisition of Canco of copies of software manufactured by USco for a fee equal to the supposed royalty plus the charge paid for each copy on the cost plus basis. ... RC describes its recently formulated position on the distinction between royalties for custom computer software programs and consideration for the right to use shrink-wrap software, and also notes that payments made to a resident of the U.S. for the right to distribute computer software generally will be exempt under Article VII. ...