Disposition

Cases

RCI Environnement Inc.(Centres de Transbordement et de Valorisation Nord-Sud Inc.) v. The Queen, 2008 DTC 4982, 2007 TCC 647, aff'd , 2009 DTC 5940, 2008 FCA 419

negotiated damages received for breach a non-compete were in respect of the disposition (i.e., cancellation) of the non-compete

The taxpayer made a series of demands for parties to a non-compete agreement (that it had received in connection with its acquisition of a business) to comply with the agreement and, following negotiations and before the commencement by it of an action, it was agreed that it would be paid a lump sum in consideration for the cancellation of the non-compete agreement.

Noël JA noted (at para. 26) that the Tax Court had:

stated that when the settlement was made (December 17, 1998), the term “disposition” was defined only for the rules relating to taxable capital gains. However, relying on the usual meaning of disposition, he concluded that the cancellation of the non-competition agreements was a disposition for the purposes of section 14 ... .

Noël JA then stated (at para. 41):

As to the concept of “disposition”, the TCC judge did not err in referring to that word’s usual meaning for the application of section 14. That is what the Supreme Court did in Compagnie Immobilière BCN, where it decided that the word “disposition” in English (“aliéné” in French) was sufficiently broad to include the extinguishment of a right granted by a lease… .

He went on to find that the lump sum gave rise to an eligible capital amount.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(9) 75
Tax Topics - Income Tax Act - Section 9 - Compensation Payments negotiated lump sum received for cancellation of non-compete was for diminutionin value of goodwill 59

Survivance v. Canada, 2007 DTC 5096, 2006 FCA 129

no disposition until payment

Shares of a corporation ("Clairvoyants") that the taxpayer tendered to a bid for all the shares of Clairvoyants were not disposed of by it until the date that the bidder took up and paid for the shares. Noël J.A. stated (at para. 50):

"It would clearly be contrary to the purpose of the legislation governing [public share offerings], and contrary to the intention of the parties, if the offeror was to be entitled to the fruits and income from the shares before he paid the price thereof."

Degeer v. Canada, 2001 DTC 5385, 2001 FCA 152

By an unregistered deed the taxpayer purported to transfer a farm that previously had been acquired by him from his parents back to his parents for a nominal consideration; and 35 days later received the farm back from his parents for a nominal consideration pursuant to a further unregistered deed.

This was found to be a scheme under which the taxpayer appeared to be disposing of the farm to crystallize a capital loss while, in the non-arm's length circumstances of the relationship between him and his parents, he retained the beneficial ownership of the farm.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership self-cancelling double title transfers 94

Anderson Estate v. The Queen, 95 DTC 758 (TCC)

The sister-in-law of the deceased who had lived with him for more than 50 years and worked on his farm venture jointly with him for most of that period without any pay, was found to have an inchoate interest in the farm by virtue of a constructive trust. Accordingly, a transfer to her of a portion of the farm lands following an action brought by her against the estate was found not to entail a disposition of such property by the estate, nor was there a deemed disposition of property under s. 70(5).

Stursberg v. The Queen, 93 DTC 5271 (FCA)

The other partners of the partnership consented to a reduction in the taxpayer's partnership interest from 40% to 15%, and to an increase in the partnership interest of a corporation ("WBG") of which he had voting control from 10% to 35%. WBG deposited the sum of $162,500 (representing 25% of the fair market value of the partnership assets) to the partnership, the taxpayer at the same time received a cheque for $162,500 from the partnership, and an amount of $269,812 representing 25/40ths of the taxpayer's 40% share of the partnership losses was transferred in the books of the partnership from the taxpayer to WBG. The taxpayer in these circumstances was found to have disposed of 25/40 of his partnership interest to WBG.

Mintenko v. The Queen, 88 DTC 6537, [1989] 1 CTC 40 (FCTD)

The taxpayer transferred legal title to land to the purchaser in 1980 in order to accommodate the requirement of the purchaser's bank that the purchaser produce title in his name before the Bank would provide financing. However, the disposition did not occur until 1981, when the purchaser obtained possession and beneficial ownership of the land, and paid the purchase price therefor.

Johnstone v. The Queen, 88 DTC 6032, [1988] 1 CTC 48 (FCTD)

An agreement for the sale of a strata unit was not concluded until 1981 and its disposition accordingly did not occur in 1980. Moreover, even if the agreement had been concluded in 1980 "it would not have met the criteria of a statutory 'disposition' for too much remained yet to be accomplished before the ultimate or final transaction or event entitling the plaintiff to the proceeds would or could occur." [C.R.: 66.2(5)(b)]

Finochio v. The Queen, 87 DTC 5228, [1987] 1 CTC 313 (FCTD)

A sale of real estate was found to have closed in 1977 notwithstanding that a defect in title was not remedied until 1978. Taxable income from the sale accordingly was recognized in 1977.

De Graaf v. The Queen, 85 DTC 5280, [1985] 1 CTC 374 (FCTD)

A lot which was transferred to a company that was beneficially owned by the plaintiff had not thereby been disposed of by the plaintiff because there had been no change in its beneficial ownership.

Hughes v. The Queen, 84 DTC 6110, [1984] CTC 101 (FCTD)

An apartment building, which was held to have been acquired for investment purposes, was also held to have been later converted from capital property to inventory when the owner actively pursued an application with the B.C. authorities for permission to convert the building into strata title units which could be sold individually.

Reilly Estate v. The Queen, 84 DTC 6001, [1984] CTC 21 (FCTD)

A "disposition" of land occurs when the parties have entered into an enforceable agreement for sale and purchase. A disposition of land thus occurred when the parties signed an informal letter agreement, which contained all the material terms that were later incorporated (with minor alterations) in a formal agreement drafted by the parties' solicitors. On the other hand, with respect to another parcel of land, there was no disposition at the time that the parties orally agreed to its purchase and sale because the Statute of Frauds rendered such an agreement unenforceable.

Gameroff v. The Queen, 83 DTC 5013, [1982] CTC 411 (FCTD), rev'd 86 DTC 6023, [1986] 1 CTC 169 (FCA)

rev'd on other grounds, 86 DTC 6023, [1986] 1 CTC 169 (FCA)

A purchaser of real property forfeited a deposit of $65,000 when it failed to complete the purchase. It was held that the taxpayer vendors realized a capital gain on the day, following default, on which they received the deposit, because on that date there had been a "disposition": the sale price of $1,350,000 owing to them pursuant to the agreement of sale and purchase was cancelled on that date by the receipt of the forfeited deposit; and furthermore, the right to the amount of either $1,350,000 or $65,000 was settled by the receipt of the latter amount.

See Also

Buzzoni, Executor of Kamhi Estate v. Commissioners for Revenue and Customs, [2012] UKUT 360 (Tax and Chancery Chamber)

The deceased, who had held a flat under a 100 year lease, entered into an underlease with a nominee and settled a trust for her children with the underlease. The underlease was rent-free but contained various covenants which were back-to-back to those contained in the lease to her. At issue was whether these covenants entailed the giving of a benefit to her. It was common ground that this would not be the case if these covenants were enjoyed by virtue of property which was never comprised in the gift, namely, her remainder interest.

In rejecting a submission that such covenants were an "essential feature of the grant of a sub-tenancy and thus define[d] the property given" (para. 12), Proudman J stated (at para. 14):

Mrs Kamhi granted a limited property interest in land which was in effect conditional upon fulfilment of the covenants. Such a benefit is either a benefit referable to the property given or it is referable to the property reserved. The nature of a lease is not such that the obligations under the lease can be said to be part of the property given. Payment of rent and service charges is not an essential feature of a lease; the only essential feature is the grant of a right to exclusive possession for a finite period. It is possible to grant a lease without covenants. The covenants themselves do not constitute an interest in land.

Fourney v. The Queen, 2012 DTC 1019 [at 2575], 2011 TCC 520

Seeking to protect herself from being sued by her brother, the taxpayer transferred title to all her real properties for no consideration to corporations under her majority control. She reported rental and business income and expenses from these properties while her accountant did the same in the corporations' returns. The Minister's reassessment included the inclusion in her income of a taxable capital gain on a disposition of the properties to the corporations.

Hogan J. noted (para. 30) that "a transfer of property for no consideration generally results in a rebuttable presumption of a resulting trust" . This presumption was further supported by the fact that, following the transfer, the taxpayer continued to operate the business properties in a personal capacity. All invoices for repairs and renovations, and all rent cheques were addressed to her personally, and all income and expenses went into or came from her personal bank accounts; and the corporations held themselves out to third parties as the property owners only in limited circumstances.

Hogan J. found that the resulting trust was a bare trust, in which the corporations could reasonably be considered to have acted as mere agents for the taxpayer. The trust was therefore not a "trust" for the purposes of the Act, pursuant to s. 104(1). Furthermore, the transfer was not a "disposition" under s. 248(1) because, as per paragraph (e), the taxpayer retained beneficial ownership. The income and expenses on the properties therefore were those of the taxpayer, and she did not realize a capital gain on the transfer.

Dubois c. La Reine, 2007 DTC 1534, 2007 TCC 461 (Informal Procedure)

legal expenses incurred re cancellation of purchase may be loss from disposition

Paris J. indicated, in obiter dicta at para. 22, that legal expenses incurred by the taxpayer in connection with her cancellation of a contract to purchase a building might have given rise to a capital loss on the basis that "the expenses may have been incurred as part of a disposition of the Appellant's right to purchase the building, and the disposition of that right may constitute a disposition of property within the meaning of section 38 and of the definition of 'property' set out in subsection 248(1) of the Act".

Williams v. The Queen, 2005 DTC 1228, 2005 TCC 558

beneficial owner of shares held in a trust

The taxpayer was found to continue to be the beneficial owner of shares that he transferred to a trust of which he was the sole trustee, notwithstanding that he had no control over the distribution of the trust property until the trust matured on its 21st anniversary. Woods, J. noted (at p. 1232) that "although the term 'beneficial ownership' is often used in the sense of full ownership except bare legal title", the ordinary meaning of the term is quite broad and includes a beneficiary's interest in trust property. This broad meaning was reflected in s. 248(3)(f).

Accordingly, there was no disposition of the shares.

Words and Phrases
beneficial owner
Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership 111

Morasse v. The Queen, 2004 DTC 2435, 2004 TCC 239 (Informal Procedure)

The taxpayer, who held American Depositary Receipts for a Mexican public company (Telmex) became the owner of an equal number of shares of another Mexican company (America Movil) pursuant to a spin-off transaction implemented by Telmex. The spin-off was implemented using a Mexican corporate law procedure called "escisión" or "split-up" under which an existing company is divided, creating a new company to which specified assets and liabilities are allocated.

In finding that the taxpayer had not disposed of her Telmex shares, Miller J. stated (at p. 2438) that: "the Mexican restructuring shifted value from the Telmex shares to the America Movil shares, but Ms Morasse did not dispose of the Telmex shares".

Smedley v. The Queen, 2003 DTC 501 (TCC)

O'Connor T.C.J. accepted the submissions of the Minister that under a contract between the taxpayers and a local mill, beneficial ownership, and possession, use and risk, did not pass to the mill until the wood had been weighed and the price determined (i.e., the time of official scaling). Accordingly, it was only then that the taxpayers disposed of the logs. As that time occurred after the time of phasing out of the capital gains exemption, the taxpayers were not able to utilize the exemption with respect to gains on the logs.

General Electric Capital Equipment Finance Inc. v. Canada, 2002 DTC 6734, 2001 FCA 392

changes to 3 of the 4 fundamental attributes of debt produced new debt

Amendments to the terms of promissory notes that decreased the principal owing, increased the interest rate, changed the maturity date and changed the identity of the payee were found to give rise to new obligations, with the result that their maturity date occurred within five years of the date of (new) issue. Sexton JA stated (at para. 10) that "I...do not think that a novation is required before there can be a new obligation" and (at para. 12) "because novation is an issue of fact, whether or not a new obligation has been created is also, by analogy, a question of fact," and noted (at para. 13) that in Wiebe "this Court held that fundamental changes to a stock option agreement which substantially affected the basic elements of the agreement were inconsistent with the continued existence of that agreement." He concluded (at paras. 14-16):

The fundamental terms of the promissory notes in question were

  1. ...the identity of the debtor;
  2. ...the principal amount of the note;
  3. ...the amount of interest under the note; and
  4. ...the maturity date of the note.

….In the present case, all but one of these fundamental terms were changed.

….When it can be said that substantial changes have been made to the fundamental terms of an obligation which materially alter the terms of that obligation, then a new obligation is created ... .

Words and Phrases
novation
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 212 - Subsection 212(1) - Subparagraph 212(1)(b)(vii) material changes produced new obligation 175

Manrell v. The Queen, 2002 DTC 1222 (TCC), rev'd 2003 DTC 5225, 2003 FCA 128

The taxpayer and corporations controlled by him disposed of shares of three corporations engaged in manufacturing plastic moulds and caps and received, in addition to sale proceeds for the shares, lump sums (payable in instalments) in consideration for giving non-compete covenants.

McArthur T.C.J. characterized the non-compete payments as consideration for the disposition of the right to compete with the purchaser, with the result that they represented capital gains.

Barnabe Estate v. The Queen, 98 DTC 1824 (TCC)

The deceased taxpayer met with his accountant, agreed with a suggestion that his farm business should be transferred to a newly-incorporated corporation of which he was a director, and signed a blank s. 85(1) election form that subsequently was lost. In finding that there was no disposition of the business to the corporation, McArthur TCJ. noted that no values had yet been attributed to the assets, there is no enforceable contract between the deceased and the corporation, and no corporate resolutions.

Quincaillerie Laberge Inc. v. The Queen, 95 DTC 155 (TCC)

amendment of agreement did not entail its transfer

A payment of $575,000 to the taxpayer by a debtor in default in consideration for an extension of the due date of the loan and the taxpayer's agreement to waive its current rights to take action on the loan, did not represent proceeds of disposition of property. Under the Quebec Civil Code, the obligation was not extinguished, but rather amended as to its term. Garon TCJ. noted (at p. 162) that the definition of "disposition" in what now is s. 248(1) "shows that a 'disposition of property' under this section entails a fundamental transfer of an interest in a property through the use of the words 'redeemed', 'canceled' and 'settled'" and that "the concept of 'disposition of property' does not seem to me more comprehensive or more extensive than that pertaining to the disposition of an interest [for purposes of the Civil Code]".

Words and Phrases
disposition
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 12 - Subsection 12(1) - Paragraph 12(1)(x) amount received for loan extension 150

In re Barne Crown Ltd., [1995] 1 WLR 147 (Ch. D.)

disposition connotes transfer

The Court found that in collecting payment upon a cheque from a third party, no disposition of the property of the customer takes place in favour of the bank if the account is already in credit. Accordingly, when the bank credits the customer's account with the amount of the cheque, there is no disposition of the customer's property for purposes of s. 127 of the Insolvency Act (U.K.) which provides):

"In winding-up by the court, any disposition of the company's property ... made after the commencement of the winding-up is, unless the court otherwise orders, void."

Judge Rich Q.C. stated (p. 152) that in "ordinary English usage ... a disposition connotes the transfer or alienation of an asset not its mere conversion into a different form which is nonetheless as much within the control of the owner".

Words and Phrases
disposition

106443 Canada Inc. v. The Queen, 94 DTC 1663 (TCC)

The transfer for nominal consideration by the taxpayer of 50% of his common shares in a corporation ("Les Entreprises") to a trustee in trust for a lender to Les Entreprises, with the right for the lender to receive any dividends on the shares while held in trust and with the right of the taxpayer to repurchase the shares of Les Entreprises from the trustee at their then book value provided that the loan to Les Entreprises from the lender as well as the previous loan from the taxpayer to Les Entreprises had both been repaid, was characterized by Lamarre Proulx TCJ. as not entailing a disposition of the shares of Les Entreprises. Furthermore, upon repurchase of the shares there was no further disposition and the amount paid to the lender in excess of the original sale price was simply additional income derived from the loan.

Sandner v. MNR, 93 DTC 901 (TCC)

The taxpayers did not realize allowable business investment losses pursuant to their guarantees of obligations of a corporation where in the taxation year the bank obtained judgment against them on their guarantees and registered the judgments in the appropriate land titles office against lands owned by them. It could not be said that the bank regarded the issuance of the judgments as payment as it continually proceeded by way of execution in subsequent taxation years to sell the parcels of land.

Foreman v. MNR, 93 DTC 7 (TCC)

debt disposition includes its extinguishment

In finding that the repayment of a promissory note held by an RRSP constituted a disposition by it of a non-qualified investment for purposes of s. 146(6), Garon J. stated (p. 10):

"In my view, the terms 'disposed of' used in a broad context are wide enough to include the act of extinguishment of a liability and the bringing to an end of the corresponding antecedent right or claim."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 146 - Subsection 146(6) 52

Charron v. MNR, 91 DTC 81 (TCC)

The taxpayer was held to have disposed of the goodwill of his business to his sons when during the Christmas shutdown he advised his family including his two sons (who currently were involved in the business) that he was retiring, at which point he simply walked away from the business.

National Trust Co. v. Mead, [1990] 5 WWR 455, [1990] 2 S.C.R. 410

assumption of loan did not entail its novation

The execution by an individual ("Mead") of an assumption of liability agreement in favour of a mortgage lender ("National Trust"), with Mead thereby being acepted by National Trust as the principal debtor, was found not to entail the novation of the mortgage loan in light inter alia of a clause in the original mortgage which provided that no "dealing by the Mortgagee with the owner of the equity of redemption of the Mortgage Premises shall in any way affect or prejudice the rights of the Mortgagee against the Mortgagor ... for the payment of the money secured by this Mortgage." Before so concluding, Wilson J. referred with approval to Canada Permanent Trust Co. v. Neumann (1986), 8 B.C.L.R. (2d) 318 (C.A.), where the following four elements necessary to establish a novation were stipulated:

  1. The new debtor must assume the complete liability.
  2. The creditor must accept the new debtor as a principal debtor and not as an agent or guarantor.
  3. The creditor must accept the new contract in full satisfaction and substitution for the old contract.
  4. The new contract must be made with the consent of the old debtor.
Words and Phrases
novation
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 80 - Subsection 80(1) tests for novation 139

Niagara Air Bus Inc. v. Cameran (1989), 69 OR (2d) 717 (HCJ.)

rescission v. variation

Before finding that an agreement of the parties to make notes payable on demand rather than upon a date certain did not constitute rescission of the old notes, Watt J. stated):

"In general terms, it might be said that rescission involves an intention of the parties to extinguish their former contractual relationship, further to substitute therefor a new and self-contained agreement. On the other hand, where the intention of the parties is but to vary, modify or waive certain of the terms of a prior agreement, the original contract remains extant and enforceable in accordance with its original terms as modified. [Emphasis in original]"

Scott Estate v. The Queen, 88 DTC 6012 (FCTD)

Reed, J. stated obiter that she did not think that the commutation of an annuity constituted a new contract.

Kirby v. Thorn EMI plc, [1987] BTC 462 (C.A.)

The taxpayer entered into an agreement with General Electric to cause its wholly-owned subsidiary to sell to General Electric the shares of three companies for stipulated sums and provided a non-compete covenant to General Electric in consideration for a further lump sum. Nicholls L.J. found that, although "the liberty or freedom to trade, enjoyed by everyone, is not a form of 'property' for capital gains purposes" here, the taxpayer (even though it was only a holding company) had goodwill in respect of the companies that were being sold, and the sum received by it represented a capital sum received in exchange for agreeing not to exploit that goodwill. Accordingly, the taxpayer derived a capital sum from that asset for purposes of s. 22(3) of the Finance Act 1965. However, there was no part disposal of goodwill for purposes of s. 22(2) of that statute.

Magnavox Electronics Co. Ltd. v. Hall, [1985] BTC 188 (HC), aff'd [1986] BTC 455 (C.A.)

A purported variation of a contract for the sale by the taxpayer company of land in fact led to the formation of a new contract since the original purchasing party, instead of being a party to the variation, had previously assigned all its rights under the contract of sale to a company connected with the taxpayer company.

Anders Utkilens Rederi A/S v. Keller Bryant Transport Co. Ltd., [1985] BTC 131 (HC)

An action by the plaintiff against the defendant was compromised by the defendant agreeing to sell its business premises forthwith and divide the proceeds with the plaintiff in a specified fashion. It was held "that the compromise imposed an immediate trust for sale and division of the proceeds from the property in the defendant's hands," and that the compromise accordingly effected a part disposal of the property by the defendant to the plaintiff within the scope of s. 22(2) of the Finance Act 1965.

Zim Properties Ltd. v. Procter, [1985] BTC 42 (HC)

A right to bring an action to seek to enforce a claim respecting alleged negligence of the taxpayer's solicitors, which right could be turned to account by negotiating a compromise yielding a substantial capital sum, was an "asset" for capital gains purposes. (S.22(1) of the Finance Act (U.K.) provided that "all forms of property shall be assets for the purposes of this Part of this Act".)

Greiner v. The Queen, 84 DTC 6073, [1984] CTC 92 (FCA)

Stone J.A. found that a surrender of stock option rights by the taxpayer to his employer corporation came within the phrase "otherwise disposed of" in s. 7(1)(b). He noted (at p. 6078) that:

"Those words appear to me to be sufficiently broad as to include an amount received as consideration for the surrender of rights that are thereby extinguished, in contrast with an amount received as consideration for rights that are 'transferred' and, as such, that remain in existence."

The Queen v. Harvey, 83 DTC 5098, [1983] CTC 63 (FCTD)

disposition of property to corporation even though property extinguished

The taxpayer was found to have disposed of his stock option rights to a corporation for purposes of s. 7(1)(b) when he agreed to surrender them for a stipulated sum, notwithstanding that the stock option right did not survive such surrender by him.

Marren v. Ingles (1980), 54 TC 76, [1980] UKHL TC_54_76 (HL)

deferred appreciation right

The taxpayer sold shares of a private company for a fixed price plus the right to receive an amount equal to one-half of any appreciation of the value of shares from the date of to the first day of public trading of the shares if there was a flotation of the company. The Crown assessed on the basis that there was a "disposal" by the taxpayer in the year of flotation pursuant to s. 22(3) of the Finance Act 1965 which provided that there was "a disposal of assets by their owners where any capital sum is derived from assets notwithstanding that no asset is acquired by the person paying the capital sum ...." Lord Fraser found that the right to receive the additional consideration was an "asset" (broadly defined to mean all forms of property), and that although the additional amount was paid to satisfy or extinguish such right and not as part of the consideration for the sale of the shares, such sum was clearly "derived from" such asset (the deferred right) and therefore was deemed to be received in connection with a disposal. Furthermore, with respect to a submission that the word "notwithstanding" meant that s. 22(3) did not apply where the payor of the sum did not acquire an asset, Lord Fraser -noted (at p. 99) that the word "notwithstanding" could mean "whether or not" and that it was a word of extension, not of limitation.

Words and Phrases
notwithstanding

O'Brien v. Benson's Hosiery (Holdings) Ltd. (1979), 53 TC 241 (HL)

A payment of 50,000 pounds by a marketing director to his employer, the taxpayer, in consideration of his release from his service contract was held to constitute the disposal of an "asset" within the meaning of s. 22(1) (quoted above). Lord Russel stated: "If, as here, the employer is able to exact from the employee a substantial sum as a term of releasing him from his obligations to serve, the rights of the employer appear to me to bear quite sufficiently the mark of an asset of the employer, something which he can turn to account, notwithstanding that his ability to turn it to account ... by a type of disposal [is] limited by the nature of the asset."

Dobell v. The Queen, 77 DTC 5316, [1977] CTC 458 (FCTD)

A disposition of mineral claims for the purposes of s. 59(3) was found to occur when an agreement for their sale was concluded.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Evidence 19

Vauban Productions v. The Queen, 75 DTC 5371, [1975] CTC 511 (FCTD), aff'd 79 DTC 5371, [1979] CTC 262 (FCA)

The taxpayer transferred to the CBC certain film rights. Since the taxpayer did not transfer all its rights respecting the films to the CBC, the transaction was characterized as a leasing of films rather than an outright sale of rights. [C.R.: 20(1)(a) - Depreciable Property]

Jenkin R. Lewis & Son Ltd. v. Kerman, [1970] 3 All ER 414 (CA)

S.24(2)(g) of the Agricultural Holdings Act 1948 (U.K.) gave a landlord of an agricultural holding, such as the plaintiff, the right to determine the tenancy within three months of the death of the tenant with whom the contract of tenancy was made. An agreement between the assignee of an assignee of the original tenant and a predecessor of the plaintiff to increase the rents did not have the effect of creating a new contract of tenancy between those persons and, consequently, a surrender and cesser of the previous contract of tenancy, given that the language of this amending agreement did not evince any intention to create a new contract of tenancy in substitution for the previous one but, on the contrary, was carefully drawn to achieve continuation of the previous tenancy. Accordingly, a notice given by the defendant within three months of the death of the original tenant was effective to determine the tenancy.

Russell L.J. noted (at p. 418) that, in contrast to the case at bar, if a tenant holds a lease of land for 20 years and he and its landlord wish the period of his right to hold the land to be extended by a further 20 years and they wish a single term for the period as so extended, this result can only be achieved if the existing term is surrendered and a new term is created.

Smith v. Lewis, [1902] 2 Ch. 667

followed in Re Cotton [1939 O.W.N. 546 (HCJ.]

An authorization by a testator for his trustees to retain any part of his estate "in its present form of investment" permitted his trustees to retain shares following a reorganization in which a company whose shares were held at the time of the testator's death was wound-up voluntarily and a new company formed with the same name and to which the assets of the old company were transferred. Buckley J. stated (p. 672):

"The altered thing that they have is the same investment in an altered form resulting from qualities inherent in the investment which the testator had ... The new company is simply a reproduction, a transformation, of the old company."

Administrative Policy

2016 Ruling 2015-0612931R3 - Variation of trust indenture

creation of new MFT units to indirectly bear trailer fees
Proposed creation of new class of units to fund trailer fees

The Declaration of Trust of an open-ended non-SIFT mutual fund trust (the “Trust”) with a corporate trustee (the “Trustee”) and with only one class of units will be amended to create two classes of units, so that the existing units will be re-designated as Class F units and a new class of units (Class A units) will be created which will have the same attributes as the Class F units except that they will bear exclusively an additional management fee, payable by an indirect subsidiary real estate operating LP to its GP (“Operating GP” – controlled by Trustee), which will fund the cost of trailer fees payable to investment dealers who have sold Class A units, with this resulting in a reduction of the distributions paid on the Class A, but not on the Class F, units. The amendments will also grant the Trustee the power and authority, from time to time, to create one or more classes of units on such terms and conditions as the Trustee may determine, provided that such creation does not adversely affect the pecuniary value of the interest of any unitholders in the Trust.

Amendment without Unitholder approval

These amendments will occur pursuant to a provision of the Declaration of Trust permitting an amendment by the Trustee without Special Resolution if, in the opinion of the Trust’s lawyers, it is not a material change which adversely affects the pecuniary value of the interest of any Unitholders and does not relate to:(i) any material change in the position, authority or responsibility of the Trustee; or (ii) any change in the investment policy of the Trust or to the Declaration of Trust, if such change is material or is otherwise required by the Declaration of Trust.

Purpose of amendment

The Trustee and Operating GP wish to increase the engagement with securities dealers who charge trailer fees in order to grow the overall investor and asset base of the Trust. The amendments are contemplated to better target trailer fees to those who purchase their units through securities dealers.

Rulings

The Amendments will not, by themselves, result in a disposition by the Trust of its property or the creation of a new trust. The re-designation of the existing units into Class F units will not, by itself, result in their disposition. The creation of the Class A units will not cause s. 104(7.1) to apply.

Locations of other summaries Wordcount
Tax Topics - Excise Tax Act - Section 141.01 - Subsection 141.01(2) CRA income tax ruling describes a structure for MFT trailer fees to be funded out of increased management fees to an indirect real estate subsidiary LP of the MFT 154

9 August 2016 Internal T.I. 2014-0526171I7 - Resettlement of a Trust

sale of the two interests in a commercial trust to a 3rd party gave rise to a new trust given that this not conemplated when trust settled

A non-resident commercial trust (the “Trust”) governed by the laws of a non-resident common law jurisdiction was settled with cash and real estate by “Corp.” and “Ltd.” Each was a capital and income beneficiary. Corp. directly or indirectly held a majority of the ordinary shares of the trustee. Corp. funded the cash portion of the Ltd. contribution with a loan secured on the Ltd. shares and Ltd.’s beneficial interest in the Trust. Ltd. defaulted under the loan.

Pursuant to a Rights Agreement, Corp. sold to an unrelated Canadian-resident third-party purchaser (“Inc.”) its interest as beneficiary in the Trust and (subject to judgment being issued in Corp.’s favour in an action against Ltd., which in fact occurred) the minority beneficiary interest of Ltd in the Trust – as well as the shares of the trustee. Immediately thereafter, the real estate was sold out of the Trust. A short taxation year for the Trust occurred as a result of the Trust becoming resident in Canada on the transfer of the shares of the trustee, so that the sale occurred in the subsequent taxation year of the Trust. The gain on sale was reduced by non-capital and net capital losses of the Trust.

The Directorate found that at common law there was a resettlement of the Trust when the above sale occurred, so that the losses could not be carried forward. It stated:

[T]he two original beneficiaries were not specifically prohibited from disposing of their capital and income interests in the Trust by selling it to someone else. However, in doing so the intention of the two original settlors is completely set aside. The intention of the settlors, as clearly spelled out in the Trust Deed, was to have the trustee hold and invest the capital of the trust for the benefit of two specific beneficiaries, the two original settlors themselves, and this is no longer the case.

Additionally, only Corp sold its capital and income interests through the Rights Agreement. Ltd was not a party to the Rights Agreement. The disposition by Corp of its capital and income interests was not authorized by the Trust Deed. …

[T]he transaction changed the whole substratum or “raison d’etre” of the Trust.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) constructive resettlement of trust on sale of beneficial interests therein extinguished its losses 186
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) sale of trust with losses to 3rd party was abusive 147

2016 Ruling 2015-0606771R3 - Disclaimer of trust interest

disclaimer of interest in estate

An estate (that was a testamentary trust) holding appreciated assets has five grandchildren who would receive as residuary beneficiaries under the estate following the death of “Ms. A and Mr. B” (presumably siblings or siblings in law, and parents of the grandchildren). CRA ruled that a disclaimer by the grandchildren - resulting in a distribution of the residue of the trust assets to Ms. A and Mr. B on an intestacy – would not result in any of the grandchildren receiving proceeds of disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(2) disclaimer resulting in a rollout of estate assets under an intestacy 372
Tax Topics - Income Tax Act - 101-110 - Section 107 - Subsection 107(1) no disposition from disclaimer 91

2016 Ruling 2015-0615041R3 - Conversion of Delaware corporation to LLC

conversion of a Delaware corp. to an LLC not a disposition
Structure

C Co is a corporation incorporated under the Delaware General Corporation Law (“DGCL”) which is wholly-owned (through the ownership of all its par value common shares) by B Co, which is a Canadian-resident unlimited liability corporation.

Continuation under Delaware law

Ss. 266(f) of the DGCL provide that the conversion of a domestic corporation, such as C Co, to an LLC shall not constitute a dissolution of the corporation, and that upon conversion, the other business form shall, for all purposes of the laws of Delaware, be deemed to be the same entity as the corporation. Ss. 8-214(d) and (g) of the Delaware Limited Liability Company Act (“DLLCA”) provide that the existence of the LLC shall be deemed to have commenced on the date the other entity was first incorporated and that the LLC shall, for all purposes of the laws of the State of Delaware, be deemed to be the same entity as the converting entity.

Proposed transactions

With the approval of its shareholder (B Co), C Co will file a certificate of formation under the DLLCA, and a certificate of conversion under the DGCL and DLLCA, so that all property and debts of C Co become vested in the LLC. As a consequence of the conversion, all the C Co common shares become LLC common shares. The LLC makes a check the box election to be treated as a corporation for Code purposes effective on its date of formation.

Rulings

Following the conversion, C Co will be considered to be the same corporation as before the conversion, it will not be considered to have thereby disposed of its assets, and B Co will not be considered to have disposed of its C Co shares, which will have the same ACB.

CRA reasons (in summary)

The Delaware legislation treats the LLC as a continuation of the converting corporation and the LLC is a corporation for purposes of the Act.

2015 Ruling 2015-0578051R3 - Variation of trust indenture

addition of preferred units not disposition

CRA ruled that the amendment of the trust deed for a listed mutual fund trust to add preferred units (also to be listed) would not result in the application of s. 104(7.1) or any disposition of trust property or existing units. erty or existing units.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.1) addition of preferred units to a listed MFT’s capital 138

2015 Ruling 2014-0558831R3 - No-type of property spin-off butterfly

splitting of fee for management of 2 divisions not a disposition of contract

A butterfly spin-off by a public corporation (DC) of two business divisions (which it prepackaged in a Newco subsidiary) is preceded by a drop-down of the assets (some held directly) of those two divisions by DC into Newco. This drop-down, in turn, is preceded by an amendment of the long-term contract for DC’s management by Manageco. This amendment accommodates the split-up, e.g., splitting the compensation between management of the retained Division 1, and of the Divisions 2 and 3 to be spun-off, with this division to be effected based on the relative (post-drop-down) fair market value of the Newco shares.

CRA ruled that these amendments would not cause a disposition of the contract.

At the same time as the drop-down of Divisions 2 and 3 to Newco, Manageco will then effect a s. 85(1) dropdown of its management business to two new subsidiaries.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution prior drop-down of assets to Newco/split of DC manager's business/CEC proration/replacement option issuance as boot 1106
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.4) replacement stock options issued by Spinco treated as boot 108
Tax Topics - Income Tax Act - Section 86 - Subsection 86(1) new common shares with same attributes as old subject to rights of new special shares/pro rata PUC 162
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) - Paragraph 85(1)(d) proration of CEC preliminary to butterfly 154

23 December 2014 External T.I. 2013-0487791E5 F - Période d'amortissement du revenu d'emphytéose

sum received on granting an emphyteusis is proceeds of disposition

A corporation rents a property under an emphyteutic lease for a lump sum. Is it able to amortize that amount over the period stipulated in the deed constituting the emphyteusis? CRA responded (TaxInterpretations translation):

[A]t civil law, an emphyteusis is not a lease, but instead a division of the property rights [citing Gatineau v. Canada, 2013 FC 439]. Consequently, the taxation rules applicable to a lease do not apply… .

If the emphyteusis is made for consideration, the sum so provided, whether payable in a lump sum or by instalments, is considered as proceeds of disposition 4of a right of emphyteusis or of part or all of the property subject to the emphyteusis. In other words, the grant of an emphyteusis constitutes the disposition of property for income tax purposes. …[Accordingly] the sum received on the grant of an emphyteusis cannot be amortized over the term because the emphyteusis is not considered as a lease and the sum received is proceeds of disposition. However, by virtue of subsection 40(1)…a taxpayer can claim a reserve…

2012-047210 no longer reflects the CRA position… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 9 - Timing sum received on granting an emphyteusis is proceeds because it is not a lease 184

S3-F9-C1 - Lottery Winnings, Miscellaneous Receipts, and Income (and Losses) from Crime

Forfeited Deposits

1.8 Cancellation of a contract constitutes a disposition of a taxpayer's rights under that contract pursuant to subparagraph (b)(ii) of the definition of disposition in subsection 248(1). This means that a taxpayer entitled to retain a deposit upon the cancellation of a contract may realize a capital gain on the forfeiture where the taxpayer's rights under the contract are capital in nature. …

Contract Novation

1.9 Novation of a contract occurs when there is a substitution of a new contract for an existing one between the same or different parties. Novation results in a disposition of rights under the original contract. A taxpayer who receives an amount to accept the novation will either realize a capital gain or be in receipt of ordinary income. Whether it is a capital or income receipt will depend on the nature of the rights disposed of as a result of the novation of the contract.

14 February 2014 Internal T.I. 2013-0490891I7 - Revocable Living Trust

revocable living trust formed on initial settlement date

On a date prior to 1988, the Trust was created and Mother (a U.S. resident) and each of her children (also U.S. residents) transferred their interests in the Property to the Trust. The Trust Deed provided that during the duration of the Trust, and provided that each of the Children was then living, Mother and the Children had the right to revoke the Trust , in which event the trust estate was to be distributed in specified shares to Mother and each of the Children. Upon the death of the last of the surviving Grantors of the Trust or upon the sale of its property, the trust estate was to be distributed to the then living descendants of Mother, per stirpes.

CRA concluded:

As stated in our presentation at the 1995 CTF conference…a revocable living trust should be recognized for income tax purposes at the time that legal title to property is transferred to it and that the transfer of the property is at its full fair market value… . Therefore… the Trust would be subject to the 21-year deemed disposition provisions of subsection 104(4)… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(4) revocable living trust formed on initial settlement date 232

2014 Ruling 2014-0518521R3 - Issuance of a new class of units - Hedged Class

addition of FX-hedged units

An open-end mutual fund trust ("Fund 1") investing in senior floating rate loans around the world will add a class of units (the "Hedged Class") intended for investors who wish to invest on a currency neutral basis. Accordingly, Fund 1 will purchase currency forward contracts (the "Canadian Hedging Contracts") solely in respect of the Hedged Class, and:

The Hedged Class…will have a return that is based on the performance of Fund 1's portfolio of investments without regard for the performance, either positive or negative, attributable to changes in value of the relevant foreign currency relative to the Canadian dollar because the foreign currency exposure of the portion of Fund 1 that is attributable to the Hedged Class will be substantially hedged using the Canadian Hedging Contracts.

Rulings re no disposition of the existing units on such amendment, no resettlement of Fund 1 and no application of s. 104(7.1).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.1) addition of FX-hedged units 144

3 January 2014 External T.I. 2013-0482081E5 - Nil value partnership units

nil value partnership

A limited partnership "has ceased all activity but has not legally ceased to exist;" and "all partnership funds have been lost in a failed investment." After finding that s. 50(1) did not deem there to be a disposition of the LP units, CRA stated:

[W]here a partnership is dissolved and the taxpayer is not entitled to and does not receive any share of the partnership's net assets (if any), the dissolution would generally result in a disposition of the partnership interest and an amount of zero may be used as proceeds of disposition… .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 50 - Subsection 50(1) nil value partnership 117

18 December 2013 External T.I. 2013-0511101E5 F - Substantial interest - Part VI.1

no disposition of shares that became voting by operation of law (due to cancellation of voting shares)

An inter vivos trust (Trust), with three individual trustees holds Class A non-voting common shares and C special voting shares of Corporation. An estate, whose three executors are the same individuals, holds non-voting Class B preferred shares. In order to convert the estate's interest into a substantial interest for Part VI.1 purposes, they cause Corporation to redeem the Class C voting shares which, in turn, causes the Class B preferred shares to become voting pursuant to s. 48(2) of the Quebec Business Corporations Act (a provision which effectively deems all shares to become voting whenever none is voting).

Respecting a mooted disposition of the Class A and B shares on their becoming voting, their voting rights arose by operation of the corporate law rather than from a modification of the rights of the shares as described in the articles. Furthermore, there was no cancellation and replacement of shares, and no change of control occurred. Accordingly, there was no disposition of the Class A or B shares.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 191 - Subsection 191(3) creation of substantial interest through redemption of special voting shares 398
Tax Topics - Income Tax Act - Section 249 - Subsection 249(4) voting rights shifted to 2nd trust with same trustees: no control change 169
Tax Topics - Income Tax Act - Section 251.2 - Subsection 251.2(2) - Paragraph 251.2(2)(a) no acquisition of control where votes pass from trust to an estate with the same individuals as executors 177

11 October 2013 APFF Roundtable, 2013-0495821C6 F - Share disposition

shares of different class can be identical property

In order to isolate cost base in preferred shares, a taxpayer transfers his common shares of a corporation to the corporation in exchange for preferred shares and common shares. In 2004-0092561E5, CRA indicated that there will not be a disposition of the "transferred" common shares to the extent that, following this transfer, the taxpayer holds shares with the same rights and restrictions as the transferred common shares. Is this position changed as a result of the enactment of s. 49, para. 3 of the Quebec Business Corporations Act, which provides that "the articles may provide that the shares of two or more classes or two or more series of the same class carry the same rights and restrictions"? CRA stated (TaxInterpretations translation):

[W]e consider the participation of a shareholder in the share capital of a corporation as being intangible property constituting the collection of the rights and conditions ("bundle of rights") respecting the shares, in accordance with the articles and relevant corporate law. The CRA applies the same position as stated in the above-noted interpretation if, by virtue of the BCA, a share of a given class issued in exchange for a share of a different class of shares has the same rights, privileges, conditions and restrictions as the share of the other class.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) shares in different class with identical attributes are the same shares 214

11 February 2013 External T.I. 2012-0451791E5 - Disposition of trust interest

addition of beneficiary results in disposition

Mr. A, who is resident in Canada, settles a discretionary family trust whose beneficiaries are Mr. B and Mrs. B and their children, but only if they are resident in Canada. A daughter (Mrs. X) of Mr. and Mrs. B then leaves the U.S. and becomes a resident of Canada. CRA stated that

it would appear that Mrs. X may be a beneficiary of the trust from its creation, but that she would be entitled to receive a distribution from the trust only when she becomes a resident of Canada....[I]f it can be established that there was no addition of a beneficiary when Mrs. X became a resident of Canada, then in our view, there would be no disposition of income or capital by the other beneficiaries.

Respecting the alternate interpretation that Mrs. X had become a beneficiary when she became a resident of Canada, CRA indicated that this would result in a disposition of the interests of the other beneficiaries - after earlier having stated that:

where the terms of the trust agreement of a discretionary trust provide for an addition of a beneficiary and the trustees' exercise their right to add such a beneficiary, it would not result in the creation of a new trust, nor in the resettlement of the trust.

2013 Ruling 2012-0464841R3 - Distribution by a trust

addition of capital encroachment right

A variation of a trust made pursuant to an application to a Superior Court in order to authorize the capital encroachment that would be entailed in the trust distributing its Class A and B common shares of Opco to the offspring of two families would not result in a disposition of property held by the Trust or a disposition of income or capital interests in the Trust.

2012 Ruling 2011-0418571R3 - Amendment to 6801(d) Plan

amendment to add stock settlement alternative

In order that the Corporation's liabilities will not fluctuate with the value of the "Deferred Payment Units" ("DPUs") held by participants, the Plan will be amended to provide that a DPU payment may be made to a participant by the issuance of one common share of the corporation for each whole DPU in the alternative to cash settlement, in the discretion of the Board.

Ruling that such amendment will not result in a disposition by participants or income inclusions under s. 5 or 6.

Locations of other summaries Wordcount
Tax Topics - Income Tax Regulations - Regulation 6801 - Paragraph 6801(d) amendment to add stock settlement alternative 82

2012 Ruling 2011-0403291R3 - Treaty exempt sale

partnership distribution not disposition

As part of a larger reorganization (see summary under s. 55(2), a Canadian partnership distributes shares of a corporate subsidiary as a return of partnership capital, thereby realized a taxable capital gain. Ruling that the partners will not be considered to have disposed of all or part of their partnership interests in that partnership as a result of the distribution.

See also summary under s. 55(2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(2) Treaty step-up to avoid the application of s. 55(2) to a spin-off made to effect an arm's length sale of the rump 291
Tax Topics - Treaties - Articles of Treaties - Article 13 Treaty step-up to avoid the application of s. 55(2) to a spin-off made to effect an arm's length sale of the rump 291

2012 Ruling 2012-0451431R3 - Loss Consolidation

addition of conversion right

LossCo and ProfitCo, both are indirect subsidiaries of a foreign parent. LossCo is indebted to ProfitCo under the LossCo Indebtedness. Proposed transactions include:

  • the terms of the LossCo Indebtedness will be amended to make them convertible into two new interest bearing debt obligations: the LossCo Note A Indebtedness, bearing interest at LIBOR and ranking pari passu with the general creditors; and the LossCo Note B Indebtedness bearing interest at LIBOR plus X% and ranking junior to the general creditors
  • ProfitCo will then exercise this conversion right

Rulings include: the addition of the conversion feature will not result in a disposition of the LossCo Indebtedness provided that there was no novation or rescission of the debt.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 111 - Subsection 111(1) - Paragraph 111(1)(a) ATR-66 elimination of debt to make Lossco solvent; roll-in/distribution out (one-day after roll in) of appreciated depreciables to use its losses 377
Tax Topics - Income Tax Act - Section 51.1 intercompany debt conversion to senior and junior note and elimination of junior note 25
Tax Topics - Income Tax Act - Section 80.01 - Subsection 80.01(4) intercompany debt conversion to senior and junior note and elimination of junior note 276

2012 Ruling 2011-0429611R3 - Variation of Trust Indenture

reclassification of preferred REIT units

An open end (as described in s. 108(2)(a)) mutual fund trust (the Trust), whose units (the Units) trade on an exchange, wishes to qualify as a closed-end mutual fund trust under s. 108(2)(b), in order that it can issue (non-retractable) "Preferred Units" in two series which are effectively inter-convertible.

Unit provisions

Following an amendment of its Declaration of Trust (not described), the Trustees will authorize the issuance of two series of Preferred Units (designated as Series A Preferred Units and Series B Preferred Units). The Series A Preferred Unit provisions may provide for a fixed, cumulative preferential cash distribution payable quarterly (with a specified reset on specified anniversaries based on GOC yields), a right of the holder on each anniversary to have its units reclassified as Series B Preferred Units, a right to be repaid the subscription amount plus accumulated and unpaid distributions (the "redemption amount") on termination of Trust, a redemption right of Trust on specified anniversaries to redeem for the redemption amount, and an absence of voting rights except after specified arrears. The Series B Preferred Unit provisions would be similar except that the distributions would be based on a floating rate. The two series would rank in parity with each other (and ahead of the Units) and would both be listed.

Comment

It is our preliminary view that at the time of reclassification or an exchange of the Preferred Unit from a Series A Preferred Unit to a Series B Preferred Unit, or vice versa, the event would likely result in a taxable disposition at that time.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.1) addition of preferred units 253
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(2) - Paragraph 108(2)(b) application of asset tests to sub LPs on look-through basis; special voting unit 337

2012 Ruling 2011-0410181R3 - Variation of trust indenture

addition of preferred units

An open end (as described in s. 108(2)(a)) mutual fund trust (the Trust), whose units (the Units) trade on a stapled basis with a second open-end mutual fund trust (FE Trust), wishes to qualify as a closed-end mutual fund trust under s. 108(2)(b), in order that it can issue (non-retractable) "Preferred Units." The retraction right of the existing units will be eliminated. For the closed-end qualification steps, see summary under s. 108(2)(b), and for a description of the Preferred Units, see the summary under s. 104(7.1).

Ruling that the issuance of the initial series of Preferred Units will not result in a disposition by any Unitholder of its beneficial interest in Trust, provided the rights attaching to those Preferred Units are based on current market conditions at the time of the offering. The summary states:

No cash consideration or other proceeds of disposition will be received by the unitholders in respect of the diminishment of their rights as a consequence of the amendments. Moreover, the changes to the trust deed in this case, as a whole are not viewed as sufficiently material to take the position that the amended units would be proceeds of disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.1) addition of preferred units with proportionate allocation of taxable income to distributions 327
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(2) - Paragraph 108(2)(b) conversion of note to satisfy 10% test/partnership look-through 251

3 December 2012 External T.I. 2012-0457741E5 - Disposition of taxable Canadian property

non s. 87 amalgamation

Respecting a question as to whether the amalgamation of two non-resident corporations holding the shares of a Canadian subsidiary would be a disposition giving rise to the application of s. 116, CRA stated:

the Canadian income tax treatment of an amalgamation that does not qualify as an amalgamation under section 87 of the Act will be determined substantially by the legal consequences flowing from the corporate law under which the predecessor corporations are amalgamated. Where the applicable corporate law provides that the predecessor corporations involved in the amalgamation cease to exist, and that a new corporation is formed on the amalgamation, the predecessor corporations will generally be considered to have disposed of any property held immediately before the amalgamation. However, where the applicable corporate law suggests a "continuation type" amalgamation, the predecessor corporations will generally not be considered to have disposed of any assets that they held immediately before the amalgamation.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1) continuation amalgamation not a disposition 149

5 October 2012 APFF Roundtable, 2012-0451281C6 F - Usufruit étranger

Respecting the treatment of a usufruct created in a foreign jurisdiction such as under the French Civil Code, CRA stated (TaxInterpretations translation):

When a usufruct is not governed by the laws of Quebec, subsection 248(3) ITA is not applicable. Consequently, in the situation of a usufruct governed by the French Civil Code, we are of the view that the formation of such usufruct would not generally be assimilated to the treatment of the formation of a trust under Canadian tax law.

In this context, it would be necessary to determine if the formation of the usufruct entailed a disposition for purposes of the ITA. This determination would need to be made in light of the legal framework established by the foreign jurisdiction which was applicable to the breaking-up of the property of the owner of the property in question.

5 October 2012 APFF Roundtable, 2012-0455431C6 F - Changement de bourse

no disposition on exchange for identical shares on US exchange

An investor holds shares of Corporation Y in street name. His shares of Corporation Y listed on the TSX are exchanged by a broker, in an off-market transaction as required by securities regulations, and effected through a log or journal entry ("entrée dite journal"), for identical shares which are listed on the NYSE, so that the investor's shares pass from a Canadian to an American account. After quoting IT-448, para. 9, 14, CRA stated (TaxInterpretations translation):

[W]e are of the view that since the rights and privileges attaching to a share of Corporation Y quoted on the New York Stock Exchange are the same as those attaching to a share of Corportion Y quoted on the Toronto Stock Exchange, the exchange of a share of quoted on the Toronto Exchange for a share of Corportion Y quoted on the New York Exchange would not constitute a disposition for purposes of the ITA.

6 May 2012 TEI Roundtable, 2012-0468931C6 - TEI Conference Q#5 Settlement Date

Notwithstanding the cancellation of IT-133, CRA confirms the continuation of its policy in that Bulletin that the date of disposition of shares is deemed to occur on the settlement date as determined under the rules of the relevant stock exchange. (Typically, the "settlement date" on a disposition of shares is two to three days subsequent to the trade date.) "A disposition does not take place until the vendor is entitled to the proceeds of disposition (on the settlement date)."

8 March 2012 Internal T.I. 2010-0387961I7

a Japanese company (Opco 1) merged with its Japanese subsidiary (Opco 2) and grandchild Japanese subsidiary (Opco 3) in a merger by absorption (kyusu gappei) under which Opco 1 was the surviving entity and Opco 2 and 3 were dissolved. As this was not a continuation type of amalgamation described in The Queen v. Black and Decker, [1975] 1 S.C.R. 411 (two streams coming together but continuing to exist) Opco 2 was considered to have disposed on the merger of its shares of two Canadian subsidiaries, thereby realizing the accrued gains on those shares.

15 February 2012 External T.I. 2011-0426531E5 - Exchange of Gold Bullion for ETR

Based on the Exchange Traded Receipts of the Royal Canadian Mint representing undivided legal and beneficial interests in gold bullion and on the statement in IT-387R2, para. 4 that an exchange of gold certificates for gold bullion is not considered to be a disposition, the exchange of such ETRs for gold bullion might not be considered to be a disposition. However, a redemption of ETRs for cash likely would be a disposition.

7 October 2011 APFF Roundtable Q. 17, 2011-0412171C6 - 112(7) - Share-for-Share Exchange - 85(1)

where there is an exchange of 100 common shares in the capital of a corporation for 100 "new" common shares in its capital, there could be considered to be no disposition of the old common shares (given that the share rights are identical), so that the s. 85(1) election is unavailable.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 112 - Subsection 112(3) 96
Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) no disposition if "new" share rights identical 48

2011 Ruling 2011-0408871R3 F - Monetization

A Canadian holding company will enter into an arrangement for the monetization of some of its shares in a Canadian public company ("ACo") under which it will enter into a forward agreement for the sale of the shares to a financial institution ("IF") and also receive an interest-bearing loan from IF, with the shares being pledged to IF under a hypothec. One of the purposes of the arrangement is to permit Mr. X to maintain control over the voting rights attached to the ACo shares for reasons that are redacted from the published ruling.

CRA ruled inter alia that the arrangements would not cause a disposition of the subject shares of ACo nor would s. 245(2) be applied.

2011 Ruling 2010-0389921R3 - New series of units - US dollar and Hedged

In order to permit some unitholders (who have US dollars to invest) to achieve a return in US dollars that is the same as the Canadian market return without being affected by the US/Cdn. FX rate, various mutual fund trusts will issue a "Series USD" (with subscriptions and distributions payable in US dollars) and purchase currency forward contracts (with resulting gains or losses being allocated to the holders of the Series USD, but with the NAV being determined in a similar manner to the existing series) to accomplish this end. Conversely, each fund will issue "Hedged Series" which, through the purchase of related currency forward contracts, will generate foreign market returns for those with Canadian dollars to invest which are neutral to fluctuations in the Canadian dollar compared to the relevant foreign currency. The existing declarations of trust provided that units of a fund may be divided into two or more series that are identical to other units except for "certain" variations respecting rights inter alia to distributions.

Rulings that these changes to not result in dispositions at the unitholder or fund levels "provided that the rights...attaching to [the new series] are based on current market conditions at the time of the offering."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(7.1) USD and hedged series 149

2010 Ruling 2010-0373801R3 - Conversion from a BV to a DC

conversion of Netherlands BV to Dutch co-op
Proposed transactions

BV, which is a private limited liability company under Dutch law, will convert into a Dutch cooperative ("DC") pursuant to the Dutch Civil Code. By virtue of the execution of the notarial deed effecting the conversion before a notary, DC will be regarded as a legal entity under the Dutch Civil Code that continues to exist separate and apart from its shareholders.

Ruling

On its conversion into DC, BV will not be considered to have disposed of any of its property for the purposes of the Act.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 85.1 - Subsection 85.1(3) 44
Tax Topics - Income Tax Act - Section 95 - Subsection 95(4) - Direct Equity Percentage 44
Tax Topics - Income Tax Act - Section 86 - Subsection 86(1) exchange of shares in Netherlands BV for membership interests in Dutch coop qualified under s. 86 139
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Share membership interest in Dutch coop a share 131

2010 Ruling 2010-0358861R3 - Variation of trust indenture

A variation of a trust indenture to ensure compliance with IFRS would not result in a disposition by the trust of its assets, or a disposition by existing unitholders.

29 July 2009 External T.I. 2008-0297011E5 F - Conversion de participations dans une SNC

no disposition if new partnerships interests exchanged for old interests are not in totality substantially distinguishable

A partnership has several members, some of whom hold partnership interests which participate in both income and capital of the partnership. The partnership agreement will be amended to provide for the issuance of two partnership interests: the first, to provide for participation only in income; and the second, to provide for participation only in capital. Would there be a disposition where an existing interest is converted or split up into a capital and income interest?

After noting that s. 97(2) permits a taxpayer to dispose of property on a tax-free basis to a partnership if, among other things, the taxpayer is a member of the partnership immediately following the disposition, CRA stated (TaxInterpretations translation):

[T]here would be a disposition of the initial interest if the interest in income and capital received in consideration had rights and characteristics sufficiently different to be distinguishable from those of the initial interest. If this difference does not exist…there would not be a disposition and subsection 97(2) could not apply. …It should be noted that the totality of the interests of a partner held in a partnership constitute a single property of the partner and represent its interest in the partnership for purposes of the ITA.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 97 - Subsection 97(2) s. 97(2) rollover not available if new partnerships interests exchanged for old interests are not in totality substantially distinguishable 201

2008 Ruling 2008-0272141R3 - Conversion of Delaware corporation into LLC

conversion into Delaware LLC of U.S. corp. holding taxable Canadian property

The shares of a U.S. corporation (D Co) holding two Canadian subsidiaries (G Co and H Co) whose shares are taxable Canadian property are contributed by its U.S.-resident parent (B Co) to a U.S. affiliate. D Co then is converted under the Delaware corporate law into an LLC.

Rulings that "D Co will not be considered to have disposed of its shares of G Co or H Co as a result of its conversion from a corporation to an LLC…" and "following its conversion…D Co will be considered to be the same corporation that it was prior to the conversion."

Locations of other summaries Wordcount
Tax Topics - Treaties - Articles of Treaties - Article 13 disposition of tcp through U.S. holdco 78

14 August 2008 External T.I. 2004-0104691E5

LLC conversion to Delaware LP

Where a Delaware LLC governed by the Delaware Limited Liability Company Act is converted into a limited partnership pursuant to s. 17-217 of the Limited Partnership Act, there will be considered to be a disposition of the property of the LLC and of the shares in the LLC.

20 November 2008 Internal T.I. 2008-0281411I7 - Addition of Beneficiaries

addition of unrelated beneficiaries

The sole trustee (the Trustee) of a family trust who also was one of the "Existing Beneficiaries" exercised a power under the Trust Indenture to add beneficiaries to the Trust who were unrelated to the Existing Beneficiaries. The Trustee then resigned and a replacement trustee became trustee. The Trust protector then removed the replacement trustee and appointed a corporation resident in Canada as trustee.

After noting that the interest of the beneficiary of a discretionary trust "is essentially a right… to be considered by the trustee as to whether or not any trust property…should, in the trustee's discretion, be distributed…see Gartside v. I.R.C., [1968] A.C. 553 (HL)," CRA stated:

When additional beneficiaries are added to a trust, whether as a result of a variation of the trust or pursuant to the terms of the trust, the rights of the existing beneficiaries...are arguably diminished and as a result, each of the existing beneficiaries realizes a disposition of a part of the bundle of rights that forms his or her interest in the discretionary trust….[However,] the addition of the New Beneficiaries will not result in any actual or deemed proceeds of disposition in respect of that disposition other than to the Existing Beneficiary who is the trustee of the Trust.

However, as the trustee

is also a beneficiary of the Trust who has realized a disposition of a part of his interest in the Trust as a result of the addition of the New Beneficiaries, we believe that a reasonable argument can be made to apply subparagraph 69(1)(b)(ii) to the portion of his interest that has been disposed….[W]e suggest that you contact the Valuation Services Section….

30 March 2007 External T.I. 2006-0196641E5 - Transfer of Silver Bullion

The transfer of silver bullion to a trust which was designed to reflect the price of silver likely would give rise to a disposition, but further particulars would be needed to comment more definitely.

15 February 2007 External T.I. 2006-0214151E5 - Disposition of Partnership Interest

With respect to an inquiry as to whether a capital loss could be claimed on a partnership interest in circumstances in which unsuccessful attempts had been made to have the unit holders vote on a formal dissolution of the partnership, CRA stated that "in our view, the dissolution of a partnership could trigger the disposition of the partnership interest in a partnership for nil proceeds of disposition".

2007 Ruling 2006-0213721R3 - Trust amendments to delete references to units

the amendment of a trust indenture to delete all references to units (so that the trust ceased to be a unit trust) would not cause a resettlement of the trust's property.

2006 Ruling 2006-0177541R3 - Amendments to Debt, Conversion

Based on a representation that under the relevant provincial law this would not result in a novation of the debt or cause its repayment or the creation of a new obligation in its place, ruling that the addition of a conversion feature to a debt obligation would not result in its disposition or in the creation of a new debt obligation.

14 January 2005 External T.I. 2004-010941

A revival of a corporation under the CBCA would appear to have retroactive effect and the revived corporation will generally have all the rights (including tax attributes) and obligations that it would have had if it had not been dissolved.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date corporate revival has retroactive effect 40

2004 Ruling 2004-007317

Ruling that the redesignation (pursuant to amendments of the trust indenture) of existing units of a mutual fund trust into Class 1 units (which may be held by non-residents) and Class 2 units (which may only be held by residents) will not result in a resettlement of the trust or a disposition of the existing units.

2004 Ruling 2004-0065921R3

conversion into California or Delaware LLC
2008-0272141R3 is similar

Conversions of corporations incorporated under the laws of Delaware and California into limited liability corporations (so that they can be held as indirect subsidiaries of a U.S. REIT in an "UPREIT" structure) would not result in dispositions at the shareholder or the entity level, given that the conversions would be similar to corporate continuances in Canada (i.e., the California corporate law provides that "the conversion shall not constitute a dissolution of such corporation and shall constitute a continuation of the existence of the converting corporation in the form of the applicable other entity of that State," and similarly for Delaware.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 90 - Subsection 90(3) 173

10 November 2004 External T.I. 2004-0092561

An individual transfers his 100 common shares of a corporation to the corporation in consideration for 500,000 preferred shares and 100 common shares of the corporation, with the 100 common shares previously held by him being cancelled. Because such transaction would not involve any change to the bundle of rights represented by the common shares held by the individual both before and after the transaction, this transaction would not entail a disposition of his 100 common shares. The transaction instead would be regarded as involving nothing more than the issuance by the corporation of 500,000 preferred shares. S.84(1) could apply to such an issuance.

8 September 2004 External T.I. 2004-007877

A change in the ownership by a brother and sister of land and building from tenants in common to joint tenants would not, by itself , result in a disposition.

29 July 2004 Internal T.I. 2003-002376

Marren v. Ingles (1980), 54 TC 76 (HL) was applied to conclude that where on the termination of an equity swap agreement between the taxpayer and a financial intermediary the rights of both parties were extinguished, the payment of the swap termination payment by the taxpayer would occur as the result of the surrender ("l'abandon") of such rights, thereby establishing that there was an associated disposition.

29 March 2004 External T.I. 2003-0049231E5

conversion from Delaware LLC to DRUPA LP

CRA was not prepared to confirm (and in fact doubted) that the conversion of a Delaware limited liability company into a limited partnership governed by the Delaware Revised Uniform Partnerships Act and Limited Partnerships Act would not result in a disposition of the shares of the LLC and of its property, stating that Ruling 9922923 found:

[A] conversion from a corporation governed by the Delaware General Corporation Law (the "DGCL") to an LLC does not result in a disposition of the shares of the DGCL or its underlying assets. At this time we are not prepared to extend the principles in the ruling to your request because the conversion in the ruling was from one corporation to another and the conversion in your request is from a corporation to a limited partnership.... Also, the position stated in Ruling 9922923 is currently being revisited

2003 Ruling 2002-017470

A great-grandchild foreign subsidiary ("Dco") of a Canadian public corporation ("Aco") and a great-grandchild foreign subsidiary of Aco ("Fco") held through another chain of corporations each hold ownership interest ("quota") in another foreign affiliate of Aco ("Eco"). The two quota holders of Eco agree that the principal assets of Eco will be assigned to a newly-incorporated corporation in the same foreign jurisdiction ("Jco") for no consideration; but that contemporaneously with the creation of Jco and the assignment of property of Eco to Jco, the capital account and retained earnings of Eco will be reduced and added to the capital and retained earnings of Jco (which is owned by Dco and Fco in the same proportions as they owned, and continue to own, Eco).

The reduction in the capital account and retained earnings of Eco will not result in a disposition by Dco of any portion of the Eco quota held by it at the time of this reorganization.

10 April 2003 External T.I. 2002-016977

Where a Japanese parent merges with his Japanese subsidiary which, in turn, holds shares of a Canadian company, the Japanese subsidiary will not be considered to have disposed of its assets, including the shares of the Canadian company, if the applicable corporate law in Japan is of a "continuation type". However, there may be a disposition of the share in the Japanese parent and subsidiary by the respective shareholders as a result of the merger before taking into account the possible effect of the addition of paragraph (n) to the definition of disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1) 93

24 February 2003 External T.I. 2002-014995

A Canadian public company ("Pubco 1") carries out a share consolidation under which each 100 pre-consolidation shares are replaced by one post-consolidation share and with each fractional post-consolidation share being repurchased for cash not exceeding $200.

"The dispositions, by the shareholders of Pubco 1, of the post-consolidation fractional Pubco 1 shares, will not, in and by themselves, cause the share consolidation ... to fall outside the circumstances described in Interpretation Bulletin IT-65. However, the shareholders of Pubco 1 should report any gain or loss, realized or incurred by them from the disposition of their fractional shares."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 116 - Subsection 116(1) 87

2002 Ruling 2002-013371A

addition of retraction right to shares not a disposition
Addition of retraction right

Articles of Amendment will be filed so that the common shares of a taxable Canadian corporation (Aco) will be retractable with a view to it qulifying as a mutual fund corporation. The aggregate Retraction Price payable by Aco in respect of any Common Shares tendered for retraction will be satisfied by payment in cash or in specie in the form of promissory notes (the "Retraction Notes"). Whether the Retraction Price is paid in cash or by Retraction Notes shall be at the option of Aco. Because of the illiquid nature of the Aco's (mostly real estate) assets, the Retraction Notes will allow Aco sufficient time to sell and convert to cash such of its assets as it deems necessary to satisfy the Retraction Price.

Ruling

Amendment does not result in a disposition of those shares.

1 November 2002 External T.I. 2001-010435

On a short-form vertical amalgamation pursuant to the Ontario Business Corporations Act "since the shareholders of the parent corporation become shareholders of Amalco as a matter of law, and Amalco is not the same entity as the parent corporation, we are of the view that the shares of the parent are converted into shares of Amalco because of the short-form vertical amalgamation for the purposes of subparagraph (b)(iii) of the definition of 'disposition in subsection 248(1)".

10 July 2002 Internal T.I. 2001-011565

The determination of whether a contract is a lease or a sale is based on the legal relationships created by the terms of the particular agreement, rather than the underlying economic realities.

28 November 2001 Internal T.I. 2001-009124

S.49(3) did not apply to deem the exercise of employee stock options held by a non-resident former employee to not be a disposition of the options, given that s. 49(3) applied only to capital property, whereas employee stock options are governed by s. 7. However, there was no liability under s. 116(5) to the Canadian corporation that had issued the options as it should not be considered to have acquired the options from the employee and, therefore, had no cost therefor. CRA stated "this is analogous to a situation where a debtor repaid his debt and the debt ceased to exist. That is, the CRA would generally recognize the settlement or extinguishment of the debt as a disposition of property by the creditor but not an acquisition of property by the debtor".

23 May 2001 Ruling 2000-006062

A change in the interest rate and the dates on which principal repayments were required to be made did not result in either a disposition of a debt obligation or the issuance of a new obligation for purposes of s. 212(1)(b)(vii) given that these amendments were made pursuant to a clause in the trust indenture that empowered note holders to approve by extraordinary resolution "any change whatsoever in any provisions of" the Trust Indenture, and on the basis of a representation that such changes would not result in a novation, or a discharge, rescission or extinguishment of any portions of the notes under the relevant provincial law.

9 March 2001 Internal T.I. 2001-006373

Before concluding that the changes, taken together, effected by a "Second Modification of the Original Lease" would be considered to be new conditions which "substantially affected the basic elements" of the Original Lease and, therefore, would give rise to a disposition of the Original Lease and an acquisition of a new lease, the Department noted that the approach in IT-448 apply to lease agreements.

18 December 2000 External T.I. 2000-005025

"If, in accordance with the relevant contract law in Quebec, the changes in the terms of the original debt obligation have resulted in a novation (where the original debt obligation is discharged and substituted by a new obligation), it is appropriate to view the original obligation as having been disposed of for income tax purposes. In the other provinces, a rescission of a debt obligation will be implied when the parties have effected such an alteration of its terms so as to substitute a new obligation in its place, which is entirely inconsistent with the old obligation or if not entirely inconsistent, inconsistent with it to an extent that goes to the very root of it. In such a case, it is appropriate to view the original obligation as having been disposed of ... ."

7 December 2000 External T.I. 2000-004005

new unit classes contemplated and their attributes similar

When units of a class or series of a mutual fund trust are changed (i.e, reclassified or redesignated) to another class or series of the same mutual fund trust, there is no disposition if the trust agreement provides that more than one class or series of units may be issued by the fund and it makes provision for changes between classes or series of units of that fund.

Inherent in these rulings was our understanding that the attributes of each class or series of units of a particular fund were substantially the same (even though each class or series may have different investment requirements), the unit holders would not be entitled to proceeds of disposition for the units, and the redesignated or reclassified units would not be cancelled or redeemed. Also, the fact that a unit holder may have to pay an initial sales charge or a deferred sales charge in respect of the redesignated or reclassified units did not alter our view that there was not a disposition of units.

2000 Ruling 2000-0023953

A US-resident corporation ("Absorbco") merges into its US-resident parent corporation, with Absorbco surviving the merger. Three other US-resident corporations (which are now sisters) then are merged into Absorbco, with Absorbco also surviving the second merger.

There is no disposition of the taxable Canadian property held by Absorbco on both mergers, whereas the merging corporations dispose of their assets at fair market value under s. 69(1)(b).

2000 Ruling 2000-002298

"The proposals include amendments to a declaration of trust and the execution of an instrument pursuant to the declaration of trust which will permit the mutual fund trusts to rename their existing units; create two new classes of units; and add a redesignation feature to each class of units which, in certain circumstances, will allow these units to be redesignated as another class of units of the same fund." Rulings that these actions will not result in a resettlement of the funds, or a disposition of the trust funds or of outstanding units, and that s. 104(7.1) will not apply.

16 August 2000 Ruling 2000-000751

Not realized capital gains of a mutual fund for a year would be due and payable to the unitholders but reinvested automatically on the unitholders' behalf in additional units.

Ruling that the consolidation of the number of Units outstanding immediately after the reinvestment so as to equal the number of Units outstanding before the issue of Units on reinvestment would not result in a disposition of the Units.

24 December 1999 Ruling 991430

The addition of a redemption feature to a unit trust and an expansion of its investment objectives would not result in a disposition of either trust property or the units of the trust.

September 1999 Gift Planning Symposium Round Table, Q. 2, No. 2000-M020417

Before disagreeing with the proposition that when a settlor transfers appreciated property to a trust and the settlor is the income beneficiary, the settlor recognizes only the capital gain attributable to the residual interest, the CCRA indicated that "personal property cannot be severed into life and remainder interests. That is why trusts are used to gift residual interests in personal property - the life interest is severed from the residue by creating beneficial interests in both the charity and the settlor. To effect the severance, it is necessary for the settlor to legally dispose of the entire property to the trust".

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership residual interest of settlor 101

16 February 1999 T.I. 973200

An amendment to the declaration of trust governing a unit trust to provide that the units may be redeemed on demand would not, by itself, result in a disposition of the units.

1 January 1999 Ruling 991371

Ruling that the expansion of the investment objects of a unit trust and the addition of a redemption right would not give rise to a disposition of the units.

1999 Ruling 992292

no disposition on conversion of C Corp to LLC

The conversion of a Delaware corporation into a Delaware LLC would not result in a disposition of its assets or of shares in its capital.

1999 Ruling 991430

The addition of a redemption feature to a unit trust and an expansion of its investment objectives was ruled not to give rise to a disposition of either trust property or the units of the trust.

28 September 1998 T.I. 981975

Normal commercial distribution arrangements for films do not result in a disposition of a portion of the copyright in the production held by the producer.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 125.4 - Subsection 125.4(4) 24

14 July 1998 Memorandum 980847

A Canadian producer would be considered to have disposed of a portion of its beneficial interest in a television production when it entered into a licence agreement with a broadcaster under which in consideration for a licence fee it agreed to pay the broadcaster 10% of all revenues derived from exploitation of the episodes, merchandise and ancillary products throughout the world in perpetuity with the broadcaster, in addition to receiving broadcasting rights, receiving other rights including ICRS rights, merchandising rights and development rights but without any transfer of copyright ownership.

Income Tax Technical News, No. 14, "Changes in Terms of Debt Obligations".

22 December 1997 External T.I. 5-971957 -

The conversion of ownership of personal use real estate from a joint tenancy to a tenancy in common would not constitute a disposition or a partition.

29 November 1996 T.I. 963204 (C.T.O. "Voting Trust, Is Disposition Recognized on Transfer")

Income Tax Technical News, No. 7 gives a general indication of their criteria that are considered by RC in determining whether a transfer of shares to a voting trust results in a change of beneficial ownership.

1997 Ruling 3-972613

An open-end mutual fund, which has one class of unit, currently pays fixed distributions that exceed its annual income. In order to accommodate those investors who do not require distributions in excess of income, the existing units are reclassified as Class A units, new Class B units are provided for having substantially identical attributes, the Class A units are made convertible into Class B units and the Class B units are similarly convertible into Class A units. RC rules that these changes do not result in a disposition of the existing units, and that the conversion of Class A units at the option of the unitholder into an equivalent value of Class B units and the conversion of Class B units at the option of the unitholder into an equivalent value of Class A units will not result in a disposition of the units.

7 October 1997 T.I. 972427

RC followed Amirault v. MNR, 90 DTC 1330 (TCC) in indicating that a reduction in the exercise price for an employee stock option would not represent a disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(1.4) 26

28 January 1997 T.I. 964091

General discussion of the circumstances in which a lease will be treated as an acquisition or disposition of property.

1997 Ruling 970265 (See also 961817)

Where, after a partnership holding shares has been dissolved in compliance with s. 98(3), each former partner surrenders undivided interest in each of its shares and receives a certificate representing ownership of an equivalent number of whole shares, the partition process will not be considered to constitute a disposition.

Income Tax Technical News, No. 7, 21 February 1996 (cancelled)

"A revocable living trust should be recognized for income tax purposes at the time that legal title to property is transferred to it and ... the transfer of the property is at its full fair market value (and not at the value of the remainder interest only)."

However, "transfers of property to a protective trust will not result in a disposition ...".

1996 Corporate Management Tax Conference Round Table, Q. 20

A revision of IT-448 is "focusing on the fact that the settlement, extinguishment or disposition of a debt obligation is primarily a matter of law."

28 October 1994 T.I. 941863 (C.T.O. "Transfer Property to a Bare Trust")

Where legal title to a property is transferred to a bare trust without a corresponding transfer of beneficial ownership, there is no disposition of property.

11 October 1994 External T.I. 5-942134

"Generally the date of disposition of property is the date on which beneficial ownership passes to the purchaser and the vendor has an absolute but not necessarily immediate right to be paid."

11 August 1994 T.I. 941219 (C.T.O. "Conversion of Gold Certificate to Gold Bullion")

Where a gold certificate evidencing ownership of a stated amount of gold bullion and that is held as capital property is exchanged for the corresponding amount of bullion, there will not be considered to be a disposition for purposes of the Act, as stated in IT-387R2, para. 4.

5 August 1994 T.I. 941285 (C.T.O. "Health and Welfare Trust and Variances to a Trust")

The transfer of property from one health and welfare trust into a new health and welfare trust will not result in a disposition where the new trust has the same terms as the old trust except for administrative matters, such as the number of meetings to be held and how the meetings are to be conducted. In addition, provisions for naming replacement trustees, or extending or amending powers of trustees, would not normally create a taxable event.

4 August 1994 T.I. 940343 (C.T.O. "Earnout Rights Re Sale of Shares")

Where the taxpayer has the right in accordance with IT-426 to use the cost recovery method for reporting the gain on a disposition of shares but elects instead to report the estimated total proceeds of disposition and to claim a reserve under s. 40(1)(a)(i), each year's earn-out rights would be considered a separate capital property having an ACB equal to its fair market value on the date of disposition. At the end of each year, that year's earn-out rights would be considered to have been disposed of for proceeds of disposition equal to the amount received or receivable for that year (thereby resulting in a capital gain or loss that was separate and distinct from the capital gain or loss on the prior disposition of the shares).

Gains from the disposition of the earn-out rights would not qualify for the enhanced capital gains exemption.

9 February 1994 T.I. 931184 (C.T.O. "Transfer of Property to a Trust")

It is not possible at law for a trust to be created on a settlement of property on it where the trust simultaneously issues a promissory note to the settlor equal to the fair market value of the property

1994 A.P.F.F. Round Table, Q. 5

When a property is transferred with a view to securing repayment of a debt or a loan (in this case, a loan from a related company), there is no disposition of property. 106443 Canada Inc. v. The Queen, [1994] E.TC 247 upholds the application of paragraph (d) of the definition of "disposition of property" even if the redemption value of property that has been sold with the right of redemption is different from the value attributed to the property at the time of transfer.

24 November 1993 Internal T.I. 7-932553

"A disposition takes place when a share is cancelled during the process of a voluntary dissolution of a corporation pursuant to clause 54(c)(ii)(A) of the Act. Even if the shares were not cancelled before the dissolution, the Department is prepared to accept that there has been a disposition of the shares of the corporation by a shareholder for the purposes of section 88 of the Act where the corporation has been wound up and the shareholder has received his portion of any final liquidating distribution by the corporation."

93 C.R. - Q. 16

disposition on survivor merger - also summarized immediately below

Where on the merger of a foreign corporation owned by a Canadian corporation with a second foreign corporation, the first corporation has ceased to exist and the second corporation is the surviving entity, there will be a disposition of a debt owing by the first corporation to the Canadian corporation.

Where the foreign law instead provides for a "continuation", it will be a question of fact whether there is a disposition of the debt.

1 December 1993 Annual CTF Roundtable, Q.16, 932866

merger of foreign debtor

Is there a disposition of a debt of a foreign corporation owned by a Canadian corporation when that foreign corporation is merged with another foreign corporation? The Department responded:

Where the foreign debtor corporation has ceased to exist and the other predecessor corporation is the surviving entity, there would be a disposition of the original debt owing by the corporation that ceases to exist. This would occur under "absorptive mergers" carried out under U.S. corporate statutes where the corporation that ceased to exist is the debtor.

Where the foreign law provides for a "continuation", it would be a question of fact whether there will be a disposition of the debt on the merger.

93 C.R. - Q. 40

Where no new partners join or leave a professional partnership but the allocation of profit is altered, with some partners being required to make additional contributions to the partnership that, in the aggregate, equal the capital withdrawn by other partners, RC will apply the reasoning in Stursberg to conclude that there has been a part disposition of a partnership interest. However, where a partnership has a high turnover of partners joining and leaving the firm, RC would not expect to apply such reasoning.

93 C.M.TC - Q. 8

Notwithstanding the Viceroy Rubber case, RC will not provide rulings that a lease results in the disposition of property. There would seldom, if ever, be a bona fide business reason for entering into a transaction that is portrayed as a lease when a disposition of property was intended.

15 January 1993 T.I. (Tax Window, No. 28, p. 23, ¶2371)

Where a non-resident co-tenant of Ontario real property transfers her interest in the property to a non-resident revocable trust, retaining for herself a life interest in the revocable trust, there will be a change in the beneficial ownership of the property, with the result that the exemption in s. 54(c)(b) will not be available.

2 December 1992 Memorandum (Tax Window, No. 27, p. 20, ¶2349, October 1993 Access Letter, p. 480)

A true abandonment of property, for example, where ownership of the property reverts to the Crown or accrues to the first finder and there is no reasonable expectation of recovery by the original owner, can constitute a disposition of property.

13 November 1992 T.I. 923187 (September 1993 Access Letter, p. 423, ¶C144-239)

Where a subscriber to an RESP names another person's child as a beneficiary in consideration of the receipt of a lump sum, the subscriber will thereby be disposing of a property giving rise to a capital gain.

P-020, 15 October 1992 "Grandfathered Leases"

Discussion of when a change to a lease would be sufficient to result in novation of the lease.

2 September 1992 T.I. (Tax Window, No. 24, p. 15, ¶2185)

There will be no deemed disposition of property on the distribution of taxable Canadian property to a non-resident beneficiary on the winding-up of a non-resident trust, based on the definition of "taxpayer" in Oceanspan Carriers Ltd. v. The Queen, 87 DTC 5102 (FCA).

92 C.R. - Q.26

Where an amalgamation does not qualify under s. 87 and, under the governing corporate law, the amalgamated corporation is considered to be a continuation of its predecessors, the predecessor corporations generally will not be considered to have disposed of any assets held immediately before the amalgamation. However, shareholders of each predecessor generally will be considered to have disposed of their shares for capital gains purposes.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(1) 64

92 C.R. - Q.10

Where the beneficiaries of a trust, which otherwise would be required to distribute its assets on the death of the settlor, consent to a variation of the trust deferring the distribution date to a specific date after the death of a settlor, there generally will not be a disposition of the property by the trust pursuant to s. 54(c), or a disposition of property by the beneficiary pursuant to s. 106(2), 107(1) or 54(c).

92 C.M.TC - Q.11

may be no disposition on conversion of limited to general partnership

RC's position (1990 Roundtable, Q.30) on whether there was a disposition on the conversion of a general partnership interest into a limited partnership interest would also be applicable to limited partners who become general partners.

12 June 1992 Memoranudm (Tax Window, No. 21, p. 10, ¶2023)

Discussion of proposed revisions to IT-125R3 respecting when a farmouts will result in a proceeds of disposition to the farmor.

8 January 1992 T.I. (Tax Window, No. 15, p. 15, ¶1688)

The cancellation of a lease by a tenant and the tenant's continued occupation of the premises on a periodic tenancy does not entail a disposition of the tenant's leasehold interest.

91 C.R. - Q.41

The date of disposition of property is the date the beneficial ownership is intended to pass to the purchaser and the time the vendor has an absolute but not necessarily immediate right to be paid.

November 1991 Memorandum (Tax Window, No. 12, p. 19, ¶1562)

A conversion of title from joint tenancy to tenancy in common does not result in a disposition provided there is no change in the percentage interest of each owner.

29 August 1991 T.I. (Tax Window, No. 8, p. 10, ¶1424)

Where a taxpayer receives treasury preferred shares of a corporation in consideration for the disposition to the corporation of its common shares, a question may arise as to whether there has been a disposition if the preferred shares are convertible to common shares.

21 May 1991 Memorandum (Tax Window, No. 3, p. 22, ¶1256)

Where new partners are found to contribute cash to a partnership which has encountered cash flow problems, and the capital accounts of the old partners are increased to recognize the fair market value of the assets, the increase in the capital accounts of the old partners should be taken as an indication that a new partnership was formed, with the result that a Canadian partner would have disposed of its interest in the old partnership, and s. 98(2) would deem the old partnership to have disposed of its property to its partners.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 98 - Subsection 98(2) 91

4 January 1991 T.I. (Tax Window, Prelim. No. 3, p. 17, ¶1085)

The disposition on the winding-up of a wholly-owned foreign subsidiary of its shares will occur when the parent becomes entitled to receive the assets as part of the dissolution proceedings although, administratively, RC will permit the disposition to be considered to have occurred on the dissolution in cases where the formal dissolution followed the distribution of the property of the subsidiary within a reasonably short period of time.

12 September 1990 T.I. (Tax Window, Prelim. No. 1, p. 21, ¶1014)

A change from joint tenancy to tenancy in common is not a disposition of property for purposes of ss.54(c), 69(1)(b) and 115(1)(a)(iii).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 164 - Subsection 164(6) 54

9 September 1990 T.I. (Tax Window, Prelim. No. 1, p. 12, ¶1033)

Where an individual and his spouse have been farming a parcel of land since 1985 and proposed to subdivide the land and sell the lots to their corporation for a promissory note, the taxpayers will have a notional capital gain on the date of conversion from capital property to inventory which occurs when the property is subdivided. However, the taxable capital gains will not arise until the taxation year in which the actual sales of the lots occur, at which time the taxpayers will be required to report the capital gain along with any profit on the sale of the land. The taxpayers will be entitled to claim the qualified farm property capital gains exemption in the year in which the capital gains are reported.

90 C.R. - Q31

In the Stursberg case, the Tax Court acknowledged that the scheme of the Act would ordinarily permit the disposition of a partnership interest to be avoided by any existing partner when one or more new members are admitted to an ongoing partnership or when participating units of an ongoing partnership are redistributed among the existing partners.

90 C.R. - Q30

conversion of general to limited partnership

In general, the conversion of a general partnership to a limited partnership will not result in a disposition of the partnership interest provided that there are no significant changes in the rights and obligations of the partners other than potential liability, and the governing provincial law does not cause a dissolution of the general partnership. However, significant changes to the following upon conversion to a limited partnership may result in a disposition of the partnership interests: the capital accounts; the percentage partnerhip interests (incluidng in profits or losses); the number or identiy of the partners; or the partnership busines.

90 C.R. - Q9

RC generally does not seek to recharacterize the receipt of advances by a leasing company from a financial institution made on the security of the leasing company's lease receivables and the lease property itself.

18 May 1990 T.I. (October 1990 Access Letter, ¶1470)

In the context of a proposed winding-up of a law firm, it was noted that when only one property is divided there will not be a disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 98 - Subsection 98(3) 19

18 September 89 T.I. (February 1990 Access Letter, ¶1107)

Because a voluntary partition under Quebec law is not translatory but rather declaratory of title, such partition does not give rise to disposition. Furthermore, property acquired by a co-owner in the course of a licitation is presumed under Quebec law to have always been owned by him and, accordingly, the licitation also does not entail a disposition. However, if the property to be partitioned consists of two distinct masses, and one co-owner receives property for one mass in exchange for his interest in another mass, there will be a disposition.

89 C.R. - Q.5

The rules in s. 13(7)(e) have no application or relevance in the determination of an individual's capital cost for capital gains purposes.

October 1989 Revenue Canada Round Table - Q.7 (Jan. 90 Access Letter, ¶1075)

The sale of a property under conditional sales contract, followed by repossession by the seller on default, are regarded as entailing two separate dispositions. Section 79 will apply to the second disposition.

9 Aug. 89 T.I. (Jan. 90 Access Letter, ¶1079)

In a situation where Mrs. A wishes to transfer capital property to a trust of which she was the settlor as well as the income and capital beneficiary and a minority trustee, RC stated that it was of the view "that in order for s. 54(c)(v) to apply, the taxpayer must have capital and income interests in the trust that have rights and attributes that are identical to the rights and attributes relating to the property transferred to the trust."

89 C.M.TC - Q.5

the determination as to whether a lease-option arrangement constitutes a lease rather than a disposition is still necessary notwithstanding the draft regulations governing capital cost allowance on leased property.

89 C.M.TC - "Bare Trusts"

quaere, whether because s. 54(c)(v) only provides that there is no disposition of the property for capital gain purposes on the transfer of property to a bare trust, the property should be regarded as owned by the trust for all other purposes.

88 C.R. - F.Q.31

A conversion of land into inventory will occur at the time of application for approval of a plan for subdivision, rather than when the owner gets financing.

88 C.P.T.J. - Q.12

A conversion of a resource property (as in the conversion of a carried working interest into a fully participating working interest) is viewed as an acquisition and disposition of property with the attendant result to both the taxpayers' CCOGP pools.

88 C.R. - "Finance and Leasing" - "Loans of Gold and Other Commodities"

A loan for consumption entails a disposition of the asset by the lender for proceeds equal to the value of the promise to return a like amount at the future date, and an acquisition by the borrower. On the date the loan is settled, there is a disposition of the promise.

88 C.R. - Q.33

The transfer of personal property to a revocable or irrevocable trust with the creation of a life-time income interest payable only to the transferor and a residual capital interest to another person, will be regarded as a disposition of the remainder interest only.

87 C.R. - Q.48

There is a disposition where a partnership disposes of shares to the issuer in exchange for other shares of the issuer which are identical to the exchanged shares.

85 C.R. - Q.26

The transfer of property by an inter vivos trust to the beneficiary (who was also the settlor) will constitute a disposition of property unless the beneficiary is the sole capital and income beneficiary.

ATR-1 (29 Nov. 85)

the transfer to a bare trustee corporation of the legal title to land in order to satisfy the requirement of the mortgagee that the mortgagor be a corporation, did not entail a disposition of the land.

84 C.R. - Q.64

The position in IT-125R3 respecting when a farm-out arrangement is not considered to be a disposition does not extend to the disposition of other property under agreements similar to farm-outs.

84 C.R. - Q.80

RC scrutinizes whether the "loaning" of securities under a dividend rental arrangement gives rise to a disposition.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 112 - Subsection 112(1) 17

81 C.R. - Q.54

Where an investor grants to a person or persons the right to distribute film in markets representing most or all of the exploitable value of the film for a guaranteed minimum consideration equal to its fair market value, there is a disposition.

Where all the incidents of ownership (possession, use and risk) are given up and the taxpayer is entitled to proceeds of disposition, then a disposition has taken place.

Guidelines re partition by tenants-in-common.

79 C.R. - Q.41

Re farm-outs.

IT-461 "Forfeited Deposits"

IT-448 "Dispositions - Changes in Terms of Securities"

IT-441 "Capital Cost Allowance - Certified Feature Productions and Certified Short Productions"

"A disposition of the film or tape will be considered to take place where the investor grants to a person or persons the right to distribute or otherwise exploit the film or tape in markets representing most or all of the exploitable value of the film or tape for a fixed amount of consideration or for a guaranteed minimum consideration which can reasonably be considered to be its fair market value."

IT-338R "Partnership Interests - Effects on Adjusted Cost Base Resulting from the Admission or Retirement of a Partner"

The admission of a new partner may as a consequence of provincial law result in the disposition by each former partner of his partnership interest.

IT-233R "Lease-Option Agreements; Sale-Leaseback Agreements"

Discussion of the circumstances in which a lease-option agreement will be characterized as a sale of the leased property.

IT-170R "Sale of Property - When Included in Income Computation"

The date of disposition of a capital property generally occurs at the time the vendor is entitled to the sale price, which normally occurs at the date of exchange specified in the agreement of purchase and sale. General discussion of considerations respecting when ownership is transferred and particular considerations applicable to real property sales and shares sales.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Ownership 10

IT-133 "Stock Exchange Transactions - Date of Disposition of Shares"

IT-65 "Stock Splits and Consolidations"

IT-126R2, "Meaning of 'Winding-Up' ", March 20, 1995

4. Generally, the dissolution of a corporation is authorized by the applicable federal or provincial statute only where it can be shown that

(a) the debts, obligations or liabilities of the corporation have been extinguished or provided for, or that creditors have given consent to the dissolution and

(b) after the interests of all creditors have been satisfied, all remaining property of the corporation has been distributed among its shareholders.

5. Where the formal dissolution of a corporation is not complete but there is substantial evidence that the corporation will be dissolved within a short period of time, for the purpose of subsections 88(1) and (2) the corporation is considered to have been wound up. Evidence confirming that proposed dissolution would generally require proof that the requirements for dissolution, as outlined in 4 above, have been met. …

9. Pursuant to subparagraph (b)(i) of the definition of "disposition" in section 54, there is a disposition of the shares of a corporation when the shares are cancelled. It is the Department's position that in the case of a corporation being wound up, the shares are cancelled when the certificate of dissolution is issued. In addition, even though the formal dissolution of a corporation has not occurred, the Department will consider that there is a disposition of the shares when subsection 88(1) or (2) applies to the corporation in the circumstances described in 5 above.

IC 72-17R4 "Procedures concerning the disposition of taxable Canadian property by non-residents of Canada - Section 116"

"... The disposition of real property normally occurs at the time the deed, in properly executed form, is delivered to the purchaser. This is usually the closing date."

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 116 - Subsection 116(2) 0

Articles

Carrie Aiken, Johnson Tai, "Debt Restructuring Transactions – Issues, Strategies and Trends", 2016 CTF Annual Conference draft paper

Rescission if the parties could sue on the 2nd arrangement alone (p. 3)

[A] contract will generally be rescinded where the parties intend to extinguish their former contractual relationship and substitute a new and self-contained agreement (as opposed to merely varying the terms of the prior agreement), [fn 18: See, for example, Niagara Air Bus Inc. v Camerman (1989), 69 OR (2d) 717 (HCJ); varied on appeal with respect to the application of the Interest Act, (1991), 3 OR (3d) 108 (CA); leave to appeal dismissed, [1991] SCCA No 374 and Amirault. The intention is to be gathered from the words of the amending agreement and the conduct of the parties at the time of the amendment. The subsequent conduct of the parties is not relevant to ascertaining the parties' intention where the language used in the amendment is clear.] and where the proposed amendments are sufficiently fundamental that they go to the root of the contract and amount to a rescission. The seminal rescission case, Morris v Baron & Co., [fn 19: Morris v Baron & Co., [1918] AC 1 (UK HL).] establishes that one method of determining whether there has been a rescission of an original agreement is to ask whether the parties could "sue on the second arrangement alone, and the first contract is got rid of either by express words to that effect, or because, the second dealing with the same subject-matter as the first but in a different way, it is impossible that the two should be both performed". [fn 20: Per Lord Devlin, in Smeaton Hanscomb & Co Ltd v Sassoon I Setty Son & Co, [1953] All ER 1471(QBD). This reasoning was imported into Canada in Western Tractor Ltd. v Dyck (1969), 70 WWR 215 (Sask CA) and subsequently applied in Alberta in Gill v Kittler (1983), 44 AR 321 (QB).]

Alison Spiers, "ECP Planning: Some Practical Considerations", Canadian Tax Focus, Vol. 6, No. 4, November 2016, p 1

Goodwill not transferable separately from business (p.1)

The view of the courts (Herb Payne Transport Ltd. v. MNR, [1963] CTC 116 (Ex. Ct)) is that goodwill is inseparable from the business to which it adds value. Accordingly, the accrued gain on goodwill cannot be realized apart from a disposition of the business.

Knowhow may not be transferable separately from a business (p 1)

A similar issue arises with respect to the transferability of knowhow….The general rule is that knowhow will be considered to have been disposed of only if the transferor can no longer avail itself of the knowledge in question—for example, when it sells the business to which the knowledge relates. An exception may exist if the knowhow is of a type that can be clearly documented and separated from the employees who developed it. Such a situation may account for the CRA's statement that "proceeds from the outright sale of knowledge are considered to be from the disposition of EC property" (Interpretation Bulletin 1T-386R, "Eligible Capital Amounts," paragraph 2(d); archived.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 14 - Subsection 14(1) a purported transfer of goodwill or knowhow separately from the related business may not be effective 94

Stephen Fyfe, Craig Webster, 2000 Conference Report, c. 21: Discussion of Multi-Class Mutual Fund Trusts.

Brown, "How to Spot the Difference Between Repos and Stock Loans", International Financial Law Review, June 1996, p. 51.

Kroft, "An Update on Select Legal Issues Relating to Dispositions and Exchanges of Property", 1995 Corporate Management Tax Conference Report, c. 10.

Douglas S. Ewens, Michael J. Flatters, "Toward a more Coherent Theory of Dispositions", 1995 Canadian Tax Journal, Vol. 43, No. 5, p. 1377

Discussion of the realization principle.

Innes, Cuperfain, "Variation of Trust: An Analysis of the Effects of Variations of Trust under the Provisions of the Income Tax Act", 1995 Canadian Tax Journal, Vol. 43, No. 1, p. 16.

Joel A. Nitikman, "Rescission of Contracts for Mistake", Canadian Current Tax, April 1995, Vol. 5, No. 7, p. 63.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Effective Date 0

Gillespie, "Lease Financing", 1992 Corporate Management Tax Conference, c. 7

Discussion (at pp. 1-20) of the distinction between sales/acquisitions and leases.

Brown, "The Transfer of Property on Death: Ownership, Control and Vesting", 1994 Canadian Tax Journal, Vol. 42, No. 6, p. 1449.

Goodman, "Is a Settlement of Property on a Revocable Inter Vivos Trust a Disposition for Income Tax Purposes", Estates & Trusts Journal, Vol. 14, No. 2, December 1994, p. 198.

Harris, "Tax Aspects of Condominium Conversions and Lease Inducement Payments to Recipients", 1986 Conference Report, c.45.

Wilde, "Damages and Capital Gains Tax", British Tax Review, 1991, Nos. 1&2, p. 5

It is argued that damages are not liable to capital gains tax.

Ward, Arnold, "Dispositions - A Critique of Revenue Canada's Interpretation", Canadian Tax Journal, September-October 1980, p. 559.

Paragraph (b)

Administrative Policy

16 March 2015 Internal T.I. 2013-0479861I7 - Section 116 & forfeited deposits on real property

forfeited sale deposit was proceeds

Before finding that a deposit forfeited to a non-resident vendor under an agreement for sale of B.C. real property (due to failure of the purchaser to close) did not represent proceeds of taxable Canadian property by virtue of s. 248(4), CRA first stated (based on the s. 248(1) – "disposition" definition) that "there is a disposition of a right under a contract where an agreement of sale has been cancelled and the buyer's deposit is forfeited to the vendor,"

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 116 - Subsection 116(5) forfeited sale deposit was proceeds of security interest rather than of tcp 235
Tax Topics - Income Tax Act - Section 248 - Subsection 248(4) forfeited sale deposit was proceeds of security interest rather than of tcp 235

Paragraph (f)

Administrative Policy

2016 Ruling 2014-0552321R3 F - Trust to trust Transfer

para. (f) exception applied on transfer from old discretionary inter vivos family trust to new trust with terms considered to be substantively the same
Background

An inter vivos Quebec trust (the “Old Trust”), which was settled some time ago by an individual unrelated to Mr. A, has as its (exclusively resident) beneficiaries, the two (now adult) children of Mr. A, a private family corporation and those among Mr. A’s grandchildren or nieces and nephews as are designated by the Initial Trustee (an individual, in turn, designated by Mr. A). Under the Deed of Trust, the Initial Trustee may determine by notarial deed and in advance the portion of the trust capital which will be distributed to each beneficiary and on what terms. No distributions are permitted to beneficiaries while they are designated persons. On the Winding-up Date (occurring one day before the 21st anniversary of the settlement date) the capital is to be distributed to the beneficiaries in such portions as determined in the Initial Trustee’s discretion. Although there apparently is no ability to amend the Trust Deed, the trustee may request a court to amend the terms of the Deed of Trust or, in his discretion, transfer the property of the trust to one or more other trusts if their beneficiaries are the same and the beneficiaries’ rights are not changed. Since its settlement, no beneficiary has received or otherwise utilized any income or capital of Old Trust, which has held only common shares (but not the dividend-bearing preferred shares) of holding companies and the gold coin with which the Old Trust was settled.

Proposed transactions

The Trust will receive a declaratory judgment of the Quebec Superior Court addressing various question of interpretation respecting the Deed of Trust including that, once an advance determination by the Initial Trustee has been made as to the beneficiaries’ shares as described above, the right of each such beneficiary to his or her share (including the share of a minor which is held in trust for him or her until the age of majority) will not be subject to any modification. The purpose of this declaration (TaxInterpretations translation):

to clarify the extent of the rights of the beneficiaries in order to determine if the transfer of the property of the [Old] Trust to the [New] Trust [described below] is feasible taking into account that the provision of the Deed of Trust of the [Old] Trust are imprecise and ambiguous, particularly as regards the determination as to whether the Initial Trustee can utilize his right of election to grant property or a portion of the [Old] Trust property irrevocably to his [grandchildren] and that the property or such portion of the property is turned over to them on their majority or, in the case of their deceasing, to their heirs of the age of majority.

The New Trust, which will be settled by an individual unrelated to Mr. A with a silver coin, will have “for all practical purposes” the same terms as the Old Trust but “adjusted to take into account the conclusions of the declaratory judgment rendered.”

The Old Trust will transfer all its property (being the Holdco common shares and the gold coin with which it was settled) to the New Trust, and the Old Trust will terminate.

The New Trust will not file an election under s. 248(1) – disposition – para. (f) – subpara. (v) for that para. not to apply.

Subsequent transactions

Prior to the Winding-up Date, the Initial Trustee will exercise his discretionary power pursuant to the Deed of Trust for the New Trust for making an advance determination of the portions of the trust capital and income which will be distributed among Mr. A’s children and grandchildren who are beneficiaries. Such determination will become an irrevocable determination on the first to occur of the day preceding the Winding-up Date and that before the Initial Trustee ceases to be a trustee.

On that date, such distribution will be made to them except for those who are designated persons, whose previously determined share will be held in trust for them until they cease to be designated persons.

Rulings

Include that to the extent that the beneficiaries of the New Trust and their respective rights under the Deed of Trust are the same as under the Deed of Trust for the Old Trust, as interpreted in light of the declaratory judgment, the property transfer to the New Trust will not entail a disposition by virtue of para. (f) (and s. 248(25.1) will deem the New Trust to be a continuation of the Old Trust, and there will thereby be no disposition of the beneficiaries’ interests.)

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 74.4 - Subsection 74.4(4) having a trust interest vest indefeasibly in a minor is consistent with the minor not receiving or having any use of the trust capital 458
Tax Topics - Income Tax Act - 101-110 - Section 108 - Subsection 108(1) - Trust - Paragraph (g) trust holding property on its 21st anniversary for minors was not subject to s. 104(4) as their shares would have been deemed under the Trust Deed to be irrevocably determined by then 397
Tax Topics - Income Tax Act - 101-110 - Section 104 - Subsection 104(5.8) 104(5.8) applied to transfer to new trust with the same beneficiaries and essentially the same terms 45

2013 Ruling 2013-0492831R3 - Trust to trust transfer of property

transfer to substantially similar new family trust with different Division Date

A family inter vivos trust (the "Trust"), with Father, his wife and XX as trustees, will transfer the Trust property, including the shares of Opco, to "New Trust," which was settled with nominal cash by the settlor of Trust and will have substantially the same terms as Trust except that the "Division Date" will no longer reference the youngest beneficiary attaining a specified age (so that the Division Date will occur on the first to occur of the death of father and his wife, or the passage of XX years from the settlement of Trust, unless the Trustees accelerate such date). This transfer will occur pursuant to a provision in the Trust deed generally permitting the transfer of the Trust property to a new trust held by the same trustees. New Trust will not elect that s. (f) of "disposition" in s. 248(1) not apply.

Rulings that the transfer of the Trust property to New Trust will not result in a disposition by virtue of s. (f) of "disposition" in s. 248(1), New Trust will be deemed to be the same trust as and a continuation of the Trust pursuant to s. 248(25.1), and s. 104(5.8) will result in the application of s. 104(4) to New Trust on the same date that it would have applied to the Trust.

2013 Ruling 2011-0395091R3 - MFC to MFT Conversion

underline;">: Background. Taxpayer, which is a listed mutual fund corporation, wishes to convert to a mutual fund trust (so that following the conversions transactions its remaining assets will be nominal) and to eliminate subsidiary (non-personal trust) subtrusts. As a preliminary transaction, it will consolidate all the assets of four substrusts (the Direct Subtrusts) into one subtrust (Trust A) through a transfer by them of all thier asts to Trust A for no consideration other than the assumpiton of liabilites.

Ruling

that the transfers from the Direct Subtrusts to Trust A in 2 will not be considered a "disposition" by virtue of s. 248(1) – disposition, (f)(v), and Trust A will be deemed, to be the same trust as, and a continuation of, each of the Direct Subtrusts by virtue of s. 248(25.1); therefore the ACB of Taxpayer's interest in Trust A will be equal to the aggregate ACB of Taxpayer's interests in the Direct Subtrusts before the transfer.

See detailed summary under s. 132.2 – qualifying exchange.

Paragraph (n)

Administrative Policy

15 September 2017 External T.I. 2017-0709331E5 - Vertical absorptive foreign merger

a simultaneous absorptive merger of FA3 (held by FA2) and FA2 (held by FA1) into FA1 would result in a disposition of the FA2 shares

Three wholly-owned stacked subsidiaries of Canco in the same foreign jurisdiction (FA1 holding FA2 holding FA3) effect a merger (the “Merger”) described in ss. 87(8.1) and (8.2) under which FA2 and FA3 simultaneously merge with and into FA1, with FA1 as the survivor corporation. Under the Merger agreement, all of FA2 and FA3’s property (other than the shares of FA3) and liabilities become the property and liabilities of FA1. FA2 and FA3 simultaneously cease to exist on the Merger, resulting in the shares of FA2 and FA3 being cancelled. Would para. (n) of the s. 248(1) “disposition” definition (“Paragraph N”) apply to the cancellation of the FA2 shares?

After noting that clause (iii)(B) of Paragraph N stipulates that “the disposing corporation receives no consideration for the share [of the issuing corporation] other than property that was, immediately before the merger, owned by the issuing corporation and that, on the merger, becomes property of the new corporation,” CRA stated:

In our view, while Paragraph N would apply to the cancellation of the shares of FA3 held by FA2, because FA2 would receive no consideration for the shares of FA3, Paragraph N would not apply to the cancellation of the shares of FA2. This is so because the shares of FA2 and FA3 would be cancelled simultaneously and, thus, FA1 would simultaneously receive property of both FA2 and FA3 on the Merger. In these circumstances, it is our view that the property of FA3 would be received by FA1 as consideration for the shares of FA2. Since the property of FA3 would not be owned by FA2 immediately before the Merger, Paragraph N would not apply.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(8) disposition at FA1 level where simultaneous aborptive merger into it of FA2 and FA3 (held by FA2) 191

4 March 2013 Internal T.I. 2012-0449371I7 - Downstream absorptive merger

In 2006, a wholly-owned CFA (FA1) of Canco merged with a wholly-owned subsidiary (FA2) of FA1, with FA2 as the surviving corporation under the corporate law of the foreign jurisdiction (i.e., a downstream merger to which draft s. 87(8.2) applied).

As "Canco did receive consideration for its disposition of the shares of FA1 in the form of the FA2 shares it received," s. 87(4)(a) applied to the disposition by Canco of its FA1 shares (assuming tht Canco did not elect to have s. 87(8) not apply), rather than draft para. (n) of the definition in s. 248(1) of disposition applying to deem Canco to have not disposed of its shares of FA1. However, draft para. (n) applied so tht FA1 did not realize gain (or loss) on its shares of FA2.

Articles

Gordon Zittlau, "Corporate Reorganizations Involving Taxable Canadian Property – Foreign Merger Considerations", International Tax Planning (Federated Press), Vol. XX, No. 3, 2015, p. 1407

Taxable Canadian property rules may be engaged by upstream merger (pp. 1407-8)

This article will examine the Canadian tax implications of a merger between two or more non-resident corporation, the shares of which are taxable Canadian property. ...

Although subsection 87(8) can provide a tax-deferred rollover of the shares of a non-resident corporation, a disposition would still occur. With the disposition, significant filing and withholding obligations under subsection 116 may also arise.

Foreign merger exemption in s. 248(1) – disposition – (n) avoids s. 116 application (p. 1409)

[T]he foreign merger exemption deems that no disposition has occurred, and an acquisition may still exist… .

[S]ubsection 116(5) should not apply in the context of a merger that qualifies under the foreign merger exception because the foreign merger exception should prevent a purchaser from coming into existence. Purchaser is defined for purposes of section 116 as the person to whom the non-resident has disposed of the property. Thus, the application of the foreign merger exception should prevent a "purchaser" from existing because the absence of a disposition should negate the possibility of a purchaser for purposes of subsection 116. Arguably, even the diminished requirement to report dispositions of treaty-exempt property does not exist if the foreign merger exemption applies.

Foreign merger exemption in para. (n) only applies if vertical [non-absorptive] merger (p. 1409)

[T]he exception applies only in respect of a foreign merger between a non-resident corporation and its non-resident shareholder. In many instances, the corporate group may wish to use a horizontal amalgamation.

[A]bsorptive mergers may not satisfy the conditions required for this exception. Subparagraph (n)(i) of the disposition definition requires that the merger must "form one corporate entity"…[and] a new corporation is not formed.

S. 87(8.2) does not cure issue with absorptive merger (but favourable older rulings) (pp. 1410-1)

Subsection 87(8.2) applies for the purposes of the definition of subsection 87(8.1)… . [B]ecause the foreign merger exception requires the merging corporations form one corporate entity separate from and in addition to the requirement that the merger be a foreign merger, the provisions of subsection 87(8.2) may not apply to remedy any deficiency that might exist in respect of an absorptive merger.

[T]he CRA has indicated in past rulings that absorptive mergers qualified as foreign mergers. The rulings in which this view was provided were in respect of foreign mergers that occurred prior to the introduction of subsection 87(8.2).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 87 - Subsection 87(8) 332

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