Subsection 84.1(1) - Non-arm’s length sale of shares
Cases
Wild v. Canada (Attorney General), 2018 FCA 114
Mr. Wild stepped up the adjusted cost base of his investment in a small business corporation (PWR) by transferring his PWR common shares to two...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | surplus-stripping transactions were not subject to GAAR before the surplus had in fact been stripped | 377 |
Fiducie famille Gauthier v. Canada, 2012 FCA 76, aff'g 2011 DTC 1343 [at 1917], 2011 TCC 318
The taxpayer, a family trust, made a non-arm's-length sale of shares to a numbered corporation ("4041763 or "404") for a promissory note of...
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| Tax Topics - General Concepts - Fair Market Value - Shares | 258 |
Canada v. Olsen, 2002 DTC 6770, 2002 FCA 3
The taxpayer transferred shares of a corporation ("Leader") to corporations controlled by the taxpayer's children and spouses in consideration for...
See Also
Crean v Canada (Attorney General), 2019 BCSC 146
The executed documents indicated that an individual (Thomas) sold his shares of a corporation (Crean Holdings) to the Newco of his brother...
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| Tax Topics - General Concepts - Rectification & Rescission | a sale agreement rectified to turn it into a 2-step sale that no longer generated a s. 84.1 dividend | 325 |
1245989 Alberta Ltd. v. The Queen, 2017 TCC 51, rev'd sub nom. Wild v. Canada, 2018 FCA 114
In order to protect the assets of an Alberta an oil field rental company (“PWR”), whose sole shareholder was Mr. Wild and whose shares of PWR...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | use of PUC-averaging rule to bump outside PUC was abusive | 273 |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(5) | assessment of PUC without current income effect | 34 |
Poulin v. The Queen, 2016 TCC 154, briefly aff’d sub nomine Turgeon v. The Queen, 2017 FCA 103
CRA successfully applied s. 84.1 to a transaction in which one of the two major shareholders of a Quebec CCPC (Mr. Turgeon) agreed to sell some...
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| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | sale to the special-purpose Holdco of an independent employee was essentially a surplus-stripping transaction rather than an arm’s length sale | 635 |
Fiducie Famille Gauthier v. The Queen, 2011 DTC 1343 [at 1917], 2011 TCC 318, aff'd 2012 FCA 76
The taxpayer, a family trust, made a non-arm's-length sale of shares to a numbered corporation for a promissory note of approximately $2.6...
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| Tax Topics - General Concepts - Substance | 233 |
Estate of the late Donald Mills v. The Queen, 2010 DTC 1301 [at 4078], 2010 TCC 443, aff'd 2011 DTC 5124, 2011 FCA 219
The taxpayer exchanged shares for a promissory note. Under s. 84.1(1)(b), the receipt of the promissory note resulted in a deemed dividend. The...
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| Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(p) - Subparagraph 20(1)(p)(i) | no bad debt if deemed dividend | 77 |
McMullen v. The Queen, 2007 DTC 286, 2007 TCC 16
The taxpayer and an unrelated individual ("DeBruyn") accomplished a split-up of the business of a corporation ("DEL") of which they were equal...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(3) | 270 | |
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | 198 | |
| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | mutual benefit and same advisors insufficient to establish non-arm's length in structured sale transaction | 257 |
| Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) | 229 |
Lloyd v. The Queen, 2002 DTC 1493 (TCC)
Although the taxpayer signed an agreement with a holding company for the sale of shares in a company ("READ") to the holding company, Bowman...
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| Tax Topics - General Concepts - Effective Date | taxpayer can attack own transaction as legally ineffective | 138 |
| Tax Topics - General Concepts - Tax Avoidance | taxapyer can argue legally ineffective transactions | 139 |
| Tax Topics - Income Tax Regulations - Schedules - Schedule II - Class 1 - Paragraph 1(q) | 70 |
Administrative Policy
APFF Financial Strategies and Instruments Roundtable, Q.8
In order to implement pipeline planning, the estate of an individual ("Estate") generally incorporates a new corporation ("Newco") to which it...
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| Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) | a pipeline transaction can use an existing corporation rather than a Newco | 187 |
2021 Ruling 2020-0868661R3 F - Section 84.1 – Leveraged Buyout
Background
Holdco (a.k.a. Gesco) holds real estate which it leases to Opco, which carries on an active business in Canada. Mr. X (an investor),...
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| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | ruling that buyout was an arm’s length transaction | 123 |
7 July 2010 External T.I. 2010-0370611E5 F - Purchase of Shares by Subsidiary - Sec. 245
A CRA response at the 2005 APFF Roundtable (2005-0141061C6) dealt with the situation where Mr. X, an arm’s length shareholder owning 20% of the...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | position that an individual potentially can realize a capital gain by selling shares to a Newco sub of the corporation for cash does not depend on there being a s. 87 or 88 merger of Newco and the corporation | 264 |
1 October 2010 External T.I. 2010-0378681E5 F - Déduction pour gain en capital
Would the capital gains deduction be available to an individual who disposes of all of the shares of "Opco") to another corporation ("Sonco")...
29 November 2016 CTF Roundtable Q. 6, 2016-0669661C6 - 84.1 and the Poulin/Turgeon Case
CRA largely repeated a statement made at the 2016 APFF Roundtable, Q.20 (also in response to the Poulin decision) respecting employee buyco...
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| Tax Topics - Income Tax Act - Section 118.1 - Subsection 118.1(1) - Total Charitable Gifts - Paragraph (c) - Subparagraph (c)(ii) | right of GREs to carry forward donations for five years | 109 |
| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | touchstones for accommodation party | 184 |
7 October 2016 APFF Roundtable Q. 20, 2016-0655831C6 F - Employee Buycos and the Poulin Case
CRA accepts the finding in Poulin that the structuring of a sale transaction so that the vendor secured a tax advantage (the capital gains...
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| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | Poulin distinction between accommodation parties and tax advantaged arm’s length dealings accepted | 188 |
2 May 2016 External T.I. 2016-0633351E5 F - Descarries Case and Document no. 2015-0610711C6
In rejecting a submission that 2015-0610711C6 had improperly reversed 2005-0134731R3 F on the basis that the purpose of section 84.1 is only “to...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | Descarries not to be construed narrowly | 176 |
24 November 2015 CTF Roundtable Q. 11, 2015-0610711C6 - Impact of the Descarries decision
In 2005-0134731R3 F, Mr. X realized a capital gain of selling all of the common shares of HOLDCO to his children in consideration for promissory...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | contrary to GAAR to use basis stepped up under CGD to create a capital loss permitting surplus extraction | 494 |
2014 Ruling 2014-0526361R3 F - Post Mortem Pipeline
An estate of B, and a spousal trust for which B had been the spouse, which on death acquired (Class F) preference shares of a portfolio...
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| Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) | step up of PUC of freeze pref shares for purposes of pipeline transaction | 315 |
25 November 2012 CTF Roundtable, 2013-0479402C6 - Employee Buycos - comments from CRA Panel
Employees of Opco received Opco shares as incentives under an Opco employee share ownership plan ("ESOP"). Under the terms of the ESOP, on...
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| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | stock option share Buyco not at arm's length | 202 |
3 July 2012 External T.I. 2012-0443421E5 F - 84.1 and partnership
A and B are Canadian-resident spouses who have not utilized their capital gains exemption and who each hold 50 Class A shares (the only issued...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | s. 245(2) has been applied to the use of a partnership to avoid s. 84.1 | 536 |
7 October 2011 Roundtable, 2011-0412121C6 F - Interaction between S. 84.1 and S. 85(2.1)
Where shares with a high PUC and low ACB are transferred by an individual under s. 85(1) to Holdco for shares with the same high-low attributes,...
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| Tax Topics - Income Tax Act - Section 85 - Subsection 85(2.1) | s. 85(2.1) does not apply where s. 84.1(1) applies even if there is no grind under the s. 84.1(1)(a) formula | 166 |
28 August 2008 External T.I. 2008-0287611E5 F - Surplus Stripping
Regarding a proposed series of transactions whose purpose was to convert a taxable dividend that would otherwise have been paid by Opco into a...
5 October 2007 APFF Roundtable Q. 10, 2007-0243171C6 F - Surplus Stripping
Scenario (a)
Mr. X, who holds all of Opco, exchanges all of his Opco common shares for retractable preferred shares of Opco. Mr. X then subscribes...
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| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | leveraged Employeeco buyout could be an arm’s length transaction | 127 |
12 January 2005 External T.I. 2004-0106161E5 - Application of par. 84.1(1)(b) on a sale of shares
Under transactions in which Mr. A sells a portion of his shares of a family farm corporation ("Farmco") to a newly incorporated subsidiary ("Xco")...
7 December 2004 External T.I. 2004-0103061E5 F - Non Arm's Length Sale of Shares-Surpl. Stripping
A professional partnership with three members disposes of all the shares of the services corporation ("Serviceco" - rendering services to the...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | scheme of Act requires that a corporate distribution be treated as income, regardless of form | 138 |
9 January 2004 External T.I. 2003-0037425 - Application of Section 84.1
A farming partnership between a husband and wife transfers its business to a newly-incorporated corporation ("Opco") whose common shares are held...
28 March 2003 External T.I. 2002-016665
Mr. and Mrs. A, and Mr. and Mrs. B, hold 26%, 12%, 26% and 12%, respectively of the common shares of a small business corporation (“OPc”) and...
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| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | 145 |
4 November 1998 External T.I. 9801695 - WHETHER A PARTNERSHIP IS A TAXPAYER
A partnership that transfers shares will be considered to be a person and a taxpayer for purposes of s. 84.1.
23 December 1993 External T.I. 9326885 F - "FACTUAL" ARM'S LENGH NATURE
RC's practice is to apply s. 84.1 where the conditions for its application are present given that its provisions do not give RC any administrative...
1993 A.P.F.F. Round Table Q. 4
It is not relevant to the application of s. 84.1 whether the subject corporation and the purchaser corporation were connected before the...
29 January 1990 T.I. (June 1990 Access Letter, ¶1264)
The sale by Mr. and Mrs. A of all the shares of Holdco to a corporation owned by their daughter and son-in-law in consideration for a promissory...
18 December 1989 T.I. (May 1990 Access Letter, ¶1220)
An estate which acquires shares of a deceased person under a testamentary trust acquires the shares from a person with whom it was not dealing at...
October 1989 Revenue Canada Round Table - Q.11 (Jan. 90 Access Letter, ¶1075)
s. 84.1 will not apply where an individual taxpayer exchanges common shares of a corporation for preferred shares of the same corporation -...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | 48 | |
| Tax Topics - Income Tax Act - Section 85 - Subsection 85(1) | 73 |
18 Aug. 89 T.I. (Jan. 90 Access Letter, ¶1082)
s. 84.1 does not apply to the disposition by an individual of 1/2 of his common shares of Opco to Opco in exchange for preference shares of Opco...
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| Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(2.1) | 67 | |
| Tax Topics - Income Tax Act - Section 84 - Subsection 84(5) | 87 |
Articles
Anthony Strawson, Timothy P. Kirby, "Vendor Planning for Private Corporations: Select Issues", 2017 Conference Report, (Canadian Tax Foundation), 11:1-28
Use of holding companies to create CDA and s. 84.1, to defer tax on a sale by individual shareholders (pp. 11:19-20)
- Opco is a CCPC.
- Opco has an...
David Wilkenfeld, "Section 84.2 Update", Tax for The Owner-Manager, Vol. 2, No. 1, January 2002.
Paragraph 84.1(1)(a)
Administrative Policy
31 August 2005 Internal T.I. 2005-0134831I7 F - Capital Gains Exemption Strip
Each of two brothers, who already held some of “their” shares of Opco through their respective holding companies (Holdco 1 or Holdco 2) had,...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | the use of s. 40(3.6)(b) for surplus-stripping purposes would be referred to the GAAR Committee | 122 |
| Tax Topics - Income Tax Act - Section 40 - Subsection 40(3.6) | individuals holding high-ACB/low-PUC prefs and low ACB/PUC common shares preserved that ACB under s. 40(3.6)(b) for surplus-stripping purposes on their prefs’ redemption | 91 |
Paragraph 84.1(1)(b)
Administrative Policy
11 October 2019 APFF Roundtable Q. 1, 2019-0819401C6 F - Interaction between par. 84.1(1)(b) and 129(1(a)
In 2002-0128955, CRA indicated that a deemed dividend under s. 84.1(1)(b) would not generate a dividend refund (DR). CRA has now stated:
[W]e have...
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| Tax Topics - Income Tax Act - Section 129 - Subsection 129(1) | reversal of position that s. 84.1(1)(b) dividends do not generate dividend refunds | 144 |
25 November 2012 Roundtable, 2013-0479401C6 F - Employés et Achat Ltée commentaires panel ARC
In order to facilitate the disposition of shares of departing employees who had purchased their shares under an employee share ownership plan,...
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| Tax Topics - Income Tax Act - Section 251 - Subsection 251(1) - Paragraph 251(1)(c) | Buyco that is formed by employer to purchases departing employees’ shares is NAL | 118 |
5 October 2012 APFF Roundtable, 2012-0454091C6 F - GRIP and deemed dividend pursuant to 84.1(1)(b)
Mr and Mrs X hold all the shares of Corporation A and B, respectively (both private corporations). Mr X sells all his shares of Corporation A to...
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| Tax Topics - Income Tax Act - Section 89 - Subsection 89(14) | s. 84.1 deemed dividend paid to an individual could be an eligible dividend notwithstanding him not being a shareholder of the payer | 269 |
30 May 2007 External T.I. 2006-0183851E5 F - Paragraphs 83(2) and 84.1(1)
Mr. X transfers high-low preferred shares of Opco 1 to Opco 2 (both held by him and related persons) in consideration for a note, such that he is...
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| Tax Topics - Income Tax Act - Section 83 - Subsection 83(2) | s. 83(2) election can be made on a s. 84.1 deemed dividend | 152 |
Subsection 84.1(2) - Idem [Non-arm’s length sale of shares]
See Also
Emory v. The Queen, 2010 DTC 1074 [at 2901], 2010 TCC 71
The taxpayer and another individual ("Chen") owned 27% and 73%, respectively of the shares (being common shares) of a corporation ("Sona"). S....
Administrative Policy
25 July 1994 External T.I. 9407865 - 85(4)
Where a transferor has acquired a subject share from a non-arm's length individual, the amount of any capital gain realized by the non-arm's...
13 April 1994 External T.I. 9405015 - NON-ARM'S LENGTH SALE OF SHARES
An individual owns all the voting shares of a corporation ("Opco") and shares (including non-voting special shares) of Opco representing...
30 November 1991 Round Table (4M0462), Q. 10.1 - Non-Arm's Length Relationship and Death (C.T.O. September 1994)
Shares acquired by a taxpayer from his deceased spouse are acquired from a person with whom the taxpayer is not dealing at arm's length and are,...
Paragraph 84.1(2)(a.1)
See Also
Pomerleau c. La Reine, 2016 TCC 228, aff'd 2018 FCA 129
The family Opco was held by a holding company (Groupe Pomerlau Inc.), whose Class F shares were held by the taxpayer, his mother and his three...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | abusive avoidance of s. 84.1 by converting soft into hard ACB | 261 |
Côté-Létourneau v. The Queen, 2010 DTC 1116 [at 3092], 2007 TCC 91
The Court rejected a submission of the taxpayers that shares issued to them by a corporation were not acquired by them: an Order for them to...
Administrative Policy
2017 Ruling 2016-0629511R3 - Post-Mortem Planning and Extraction of "Hard ACB"
CRA ruled on a pipeline involving Opco shares inherited by an individual whose ACB consisted of both “soft” ACB (attributable to V-Day value...
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| Tax Topics - Income Tax Act - Section 84 - Subsection 84(2) | pipeline transfers of shares with both “soft” and “hard” ACB | 663 |
9 October 2015 APFF Roundtable Q. 14, 2015-0595631C6 F - Indirect Monetization of CGD
Following Descarries, CRA will no longer issue rulings in which an individual can in effect use shares (e.g., preferred shares) whose ACB was...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | Descarries not consistent with use of ACB on a previous capital gains crystallizatin to create a capital loss for use on a sale | 169 |
9 October 2015 APFF Roundtable Q. 7, 2015-0595561C6 F - Computation of adjusted cost base and section 84.1
The capital gains deduction was claimed in the terminal return of an individual (X) for shares which were bequeathed to his son, and the son then...
10 August 2015 External T.I. 2015-0602751E5 - Capital gains deduction and section 84.1
The taxpayer and his wife acquire all the shares, qualifying as qualified small business corporation shares, of a corporation (the "Corporation")...
Finance
2017 CTF Finance Roundtable, Q.9
Finance is struggling with whether it is possible to provide relief for intergenerational transfers of businesses without generating quite...
2017 CTF Finance Roundtable, Q.8
There will not be a complete carve-out for pipeline transactions. It is difficult to see how the current results obtained using pipelines do not...
Articles
Joint Committee, "Part D of Tax Planning Using Private Corporations – “Converting Income into Capital Gains” Proposals", 2 October 2017 Joint Committee Submission
Effect of expanded rule on post-mortem transfers (pp. 8-14)
The expanded s. 84.1 rule produces a greater impediment to the transfer of family...
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| Tax Topics - Income Tax Act - Section 246.1 | 490 |
Subparagraph 84.1(2)(a.1)(ii)
Cases
Pomerleau v. Canada, 2018 FCA 129
An individual taxpayer engaged in transactions to extract surplus from a family holding corporation (Groupe Pomerleau Inc.) to the extent that the...
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|---|---|---|
| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | purpose of s. 84.1 was broader than the application of its words | 487 |
Administrative Policy
28 May 2010 External T.I. 2010-0359871E5 F - Déduction pour gain en capital
Qualified small business corporation shares are disposed of by the taxpayer to a child for FMV proceeds during the taxpayer’s lifetime or on...
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| Tax Topics - Income Tax Act - 101-110 - Section 110.6 - Subsection 110.6(2.1) | deduction available on NAL disposition inter vivos or on death | 141 |
17 March 2005 External T.I. 2005-0118601E5 F - Sale of Shares-Transfer of Family Business
An individual ("A") wholly-owning Holdco, held Holdco common shares with a nominal FMV, ACB and PUC, and Holdco preferred shares having an FMV of...
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| Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) | GAAR could apply where previous capital gains crystallization transaction indirectly generated a capital loss on a pref redemption transaction | 445 |
Paragraph 84.1(2)(b)
Administrative Policy
23 June 2010 Internal T.I. 2010-0368161I7 F - 84.1
Three individuals (A, B, and C) each held 1/3 of the shares of Holdco, and Holdco and another individual, D, each held ½ of the shares of Opco. ...
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| Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(2.2) - Paragraph 84.1(2.2)(b) | s. 84.1(2.2)(b) group can include a non-voting shareholder | 125 |
7 December 2004 External T.I. 2004-0104321E5 F - Non Arm's Length Sale of Shares
A was one of eight individuals holding all of the shares (of a single class) of Opco. (Specifically, each of A, B, C and D held 18.75%, and each...
Paragraph 84.1(2)(e)
Articles
Allan Lanthier, "The general anti-avoidance rule and family surplus strips", Canadian Accountant, 12 August 2021
Overview of s. 84.1(2)(e)
- S. 84.1(2)(e) indicates that an individual selling qualified small business shares or shares of a family farm or...
Allan Lanthier, "Tax relief for family business transfers: A legislative fiasco – Part I / Tax relief for family business transfers: A legislative fiasco – Part II", Canadian Accountant, 8 July 2021 (Part I) and 9 July 2021 (Part II)
Overview
- Bill C-208 generally provides that an individual selling qualified small business shares or shares of a family farm or fishing...
Subsection 84.1(2.1)
Administrative Policy
29 May 2018 STEP Roundtable Q. 17, 2018-0744141C6 - S.84.1 and Capital Gains Reserve
S. 84.1(2.1) indicates that for purposes of the adjusted cost base reduction under s. 84.1(2)(a.1)(ii)) respecting a non-arm’s length transfer...
28 April 2016 External T.I. 2015-0594461E5 - Subsection 84.1(2.1)
Does the phrase “the amount in respect of which a deduction under section 110.6 was claimed in respect of the transferor’s gain from the...
Subsection 84.1(2.2)
Paragraph 84.1(2.2)(b)
Administrative Policy
23 June 2010 Internal T.I. 2010-0368161I7 F - 84.1
Three individuals (A, B, and C) each held 1/3 of the shares of Holdco, and Holdco and another individual, D, each held ½ of the shares of Opco. ...
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| Tax Topics - Income Tax Act - Section 84.1 - Subsection 84.1(2) - Paragraph 84.1(2)(b) | s. 84.1(2)(b) inapplicable to individual’s transfer of ½ of Opco to Holdco (owned by 3 unrelated individuals) for note and non-voting pref | 212 |