NON-ARM S LENGTH TRANSFERS OF PROPERTY

Transcription

1 TABLE OF CONTENTS Dedication... Preface... Table of Cases... Table of Statutory References... iii v xiii xxxiii 1 INTRODUCTION General Arrangements NON-ARM S LENGTH TRANSFERS OF PROPERTY The Non-Arm s Length Concept Related Persons... 6 (a) De Jure Control of a Corporation... 8 (b) Control by an Unrelated Group (c) Rights in Respect of Shares (d) Amalgamations Non-Arm s Length in Fact (a) Common Mind (b) Accommodation Party (c) Acting in Concert without Separate Interests (d) De Facto Control (e) Shareholders and Corporations (f) Partnerships (g) Trusts Section 69(1) Section 69(11) Price Adjustment Clauses Affiliated Persons Individuals Corporations Partnerships Trusts Stop-Loss Rules Non-Depreciable Capital Property (a) Suspended Losses: Section 40(3.4) (b) Superficial Losses: Section 40(2)(g)(i) (c) Identical Property (d) Repurchase or Redemption of Shares: Section 40(3.6) (e) Shares of a Controlled Corporation: Section 40(2)(h) (f) Prescribed Shares: Section 40(2)(i) (g) Certain Bonds and Debentures: Section 40(2)(d)... 57

2 viii TABLE OF CONTENTS (h) Related-Party Debt: Section 40(2)(e.1) (i) Commercial Obligations: Section 40(2)(e.2) (j) Non-Income Earning Debt: Section 40(2)(g)(ii) Depreciable Property (a) Buildings: Section 13(21.1) (b) Terminal Losses: Section 13(21.2) Eligible Capital Property: Section 14(12) Dividend Stop-Loss Rules (a) Natural Persons and Corporations (b) Partnerships (c) Trusts (d) Grandfathered Shares (e) Exchanged Shares (f) Non-Resident Individuals Certain Inventory: Section 18(15) Non-Arm s Length Transfer of Depreciable Property: Section 13(7)(e) Eligible Capital Property (a) Non-Arm s length Transfers: Section 14(3) (b) Rollover to Controlled Corporation: Section 24(2) Non-Arm s Length Transfer to Defeat Tax Liability TAX DEFERRED ROLLOVERS: SECTION 85(1) Eligible Transferors and Transferees Eligible Property Capital Property Shares of the Transferee Right to Income and Accounts Receivable Real Property Partnership Interests Agreed Amount General Deeming Rules on Agreed Amounts Specific Deeming Rules for Certain Kinds of Property (a) Inventory and Non-Depreciable Capital Property (b) Cash Method Accounting (c) Eligible Capital Property (d) Depreciable Property (e) Passenger Vehicles Priority of Deeming Rules Order of Disposition of Properties Consequences Where Benefit Conferred on a Related Person Shareholder Benefit

3 TABLE OF CONTENTS ix 3.5 V-Day Amounts Consideration Received by Taxpayer Timing of Share Issuance Determination of the Taxpayer s Cost of Consideration (a) Cost of Boot (b) Cost of Preferred Shares (c) Cost of Common Shares Paid-up Capital of Shares Received Taxable Canadian Property Capital Property or Inventory Property Received by Transferee Corporation Deemed Dividends under Section Partnership Transfers and Wind-ups: Sections 85(2) and (3) Election Mechanics of the Election Listing of Transferred Properties CAPITAL REORGANIZATIONS Section 86: Exchange of Shares in a Reorganization of Capital Eligible Transferors and Corporations Disposition of All of the Shares of the Class Held by the Taxpayer Reorganization of the Capital of the Corporation Indirect Gift Shareholder Benefit Paid-up Capital of New Shares Deemed Dividend Preservation of Reduced Cost for Debt Forgiveness Purposes Shares Held Since Comparison with Section Share Issuances and Option Grants Option to Acquire Securities of Another Corporation Option to Acquire Securities of the Granting Corporation Shareholder and Employee Benefits Put Options Non-arm s Length Option Grants Section 51: Convertible Property Eligible Transferors and Corporations Indirect Gift Shareholder Benefit Paid-up Capital of the Acquired Shares Convertible Property Held Since Section 51.1: Debt Obligation Conversions Non-Resident Withholding Tax on Convertible Debt

4 x TABLE OF CONTENTS 4.6 Stock Splits and Consolidations Stock Dividends Shareholder Benefit on the Payment of a Stock Dividend Capitalization of Surplus: Section 84(1) Exceptions under Section 84(1) Redemption of Shares: Section 84(3) Returns of Capital Private Corporations: Section 84(4) Public Corporations: Section 84(4.1) Preferred Shares: Sections 84(4.2) and (4.3) Section 86.1: Foreign Spin-offs SURPLUS STRIPPING Section Relevant Transferors and Transferees Non-Arm s Length (a) Factual Non-Arm s Length (b) Expanded Meaning of Non-Arm s Length for (c) Section Expanded Meaning of Non-Arm s Length for Section 84.1(2)(a.1) Connected Corporations Paid-up Capital Reduction Deemed Dividend Capital Dividends and RDTOH Arm s Length Adjusted Cost Base Section Non-Arm s Length Sales of Shares by Non- Residents SHARE FOR SHARE EXCHANGES SECTION Domestic Exchanges Vendor Must Be a Taxpayer Effect on Vendor Effect on Purchaser Paid-up Capital of Issued Shares Exchanges Involving Foreign Affiliates Foreign Exchanges Cross-Border Share-for-Share Exchanges AMALGAMATIONS Definition Amalgamated Corporation Taxation Year Inventory Income Computation Depreciable Property Capital Property

5 TABLE OF CONTENTS xi Partnership Interests Property Used in an Insurance or Money Lending Business Certain Property of Financial Institutions Eligible Capital Property Reserves (a) General (b) Bad Debts (c) Doubtful Debts (d) Contingent Reserves for Banks and Insurers (e) Properties Sold in the Course of Business (f) Undelivered Goods and Services (g) Capital Properties (h) Quadrennial Surveys (i) Uncollectible Proceeds (j) Credit Unions Holdbacks Interest Income Prepaid Expenses Injected Substances Employee Benefit Plans Lease Cancellation Payments Inducement Payments and Government Assistance International Banking Centre Business Financial Institutions Income Attribution Employee Payments Scientific Research and Experimental Development Replacement Property Warranty Outlays Options Foreign Affiliate Shares Resource Properties Interest Expense Penalties, Bonuses, and Rate Reduction Payments Charitable Donations Debts of a Predecessor Public Corporation Status Livestock Fuel Tax Rebates Losses (a) Restricted Farm Loss and Farm Loss (b) Non-Capital Loss and Net Capital Loss (c) Dividends on Shares (d) Losses on Certain Shares Tax Credits

6 xii TABLE OF CONTENTS (a) Small Business Deduction (b) Manufacturing and Processing Profits Deduction (c) Investment Tax Credit (d) Foreign Tax Credit (e) Large Corporations Tax and Financial Institutions Tax Special Tax Accounts (a) Capital Dividend Account (b) Refundable Dividend Tax on Hand (c) Pre-1972 Capital Surplus on Hand (d) Contributed Surplus (e) GRIP and LRIP Special Corporations (a) Mutual Fund Corporation (b) Investment Corporations (c) Non-Resident-Owned Investment Corporation (d) Life Insurance Corporation Parts III and III.1 Tax Parts IV.1 and VI.1 Tax on Taxable Preferred Shares Transfer of Part VI.1 Tax Liability Paid-Up Capital Functional Currency Rules Superficial Losses Instalment Deferral Qualifying Environmental Trusts Film and Video Productions Section Gift of a Non-Qualifying Security SIFT Wind-Up Corporation Balance-Due Date Canada Pension Plan and Employment Insurance Payments Use of Amalgamation to Access Tax Benefits Goods and Services Tax Securityholders of Predecessor Corporations Proceeds of Disposition and Cost Term Preferred Shares Other Preferred Shares Rights to Acquire Grandfathered Shares Flow-Through Shares Options Tax-Deferred Shares of an Agricultural Co-operative Corporation Transitional Rules

7 TABLE OF CONTENTS xiii Creditors of Predecessor Corporations Continuation of Listed Status Flow-Through Entities Triangular Amalgamations Vertical Amalgamations Foreign Mergers CAPITAL GAINS STRIPS AND DIVISIVE REORGANIZATIONS Capital Gains Strips: Section 55(2) Relevant Dividends Purpose or Result of Transaction or Series Part IV Tax Exception Safe Income Exception (a) Income Earned or Realized after 1971 and before the Safe-Income Determination Time (b) Uncertainties About Safe Income: Series of Dividends and Section 55(5)(f) (c) Safe-Income Determination Time Divisive Reorganizations Overview and Historical Perspective Types of Divisive Reorganizations Nomenclature (a) Section 55(3)(a) Reorganization (b) Butterfly Reorganization Undefined Terms (a) Reorganization (b) Series of Transactions (c) In Contemplation Of (d) Immediately Before and Immediately After The Section 55(3)(a) Exemption Interpretive Rules (a) Unrelated Persons (b) Dividend Recipient (c) Amalgamations and Windings-up (d) Section 55(3.01) Proceeds of Disposition (e) Series of Transactions and Immediately (f) Significant Increase in the Total Direct Interest Prohibited Transactions (a) (b) Section 55(3)(a)(i) Dispositions of Property Section 55(3)(a)(ii) Significant Increase in Interest in a Corporation

8 xiv TABLE OF CONTENTS (c) (d) (e) Section 55(3)(a)(iii) Dispositions of Shares of the Dividend Payer or Derivative Property Section 55(3)(a)(iv) Dispositions of Shares of the Dividend Recipient or Derivative Property Section 55(3)(a)(v) Significant Increase in Direct Interest in Dividend Payer The Section 55(3)(b) Exemption Defined Terms (a) Distribution (b) Specified Class (c) Permitted Redemption (d) Permitted Exchange (e) Permitted Acquisition (f) Qualified Person Types of Property (a) Consolidated Look-Through Approach (b) Valuation of Types of Property: Net Equity or Gross Equity Divisive Reorganizations The Butterfly Exemption: Section 55(3)(b) (a) Specified Corporations: Spin-Off Butterfly Reorganizations Involving Public Corporations and Their Subsidiaries (b) Section 55(3)(b): The Basic Exemption (c) Prohibition on Property Becoming Property: Section 55(3.1)(a) (d) Requirement for Continuity of Share Ownership: Section 55(3.1)(b) (e) Post-Butterfly Restrictions306: Sections 55(3.1)(c) and (d) WINDING-UP Definition Winding-up of Resident Corporation Where Section 88(1) Applies Rules Applicable to the Subsidiary Rules Applicable to the Parent (a) Shares of the Subsidiary (b) Cost to Parent of Property of the Subsidiary and Other Flow-Through Provisions (c) Carryover of Losses to Parent (d) The Bump (e) The Bump Denial Rule Rules Applicable to Creditors Rules Applicable to Minority Shareholders

9 TABLE OF CONTENTS xv 9.3 Winding-up of Resident Corporations Where Section 88(1) Does Not Apply Deemed Sale of Property Deemed Dividend Pre-1972 Capital Surplus on Hand Deemed Disposition of Shares Part XIII and Section Liability of Legal Representatives and Clearance Certificates Section (a) Requirement to Obtain Clearance Certificate (b) Legal Representatives CONTINUANCE AND CORPORATE MIGRATION Continuance within Canada Corporate Emigration Continuance Outside Canada Deemed Disposition of Property Deemed Year End Foreign Exploration and Development Expenses/Foreign Resources Expenses Additional Tax on Corporate Emigration Corporate Immigration Continuance into Canada Deemed Disposition of Property Deemed Year End Deemed Dividend by Canadian Subsidiary Branch Tax Adjustments to Paid-Up Capital Deemed Dividend by the Corporation Cost of Shares of the Corporation Former Foreign Affiliate APPENDIX A ACQUISITIONS OF CONTROL Control Acquisition of Control Determination Share Acquisitions, Redemptions and Cancellations, and Changes in Share Attributes Amalgamations Reverse Takeover Share Exchanges SIFT Reverse Takeover Transactions Other Share Exchanges SIFT Trust Conversions Corporation Without Share Capital Change of Trustee Bankruptcy

10 xvi TABLE OF CONTENTS 11.3 Consequences of an Acquisition of Control Taxation Year-End Expiration of Net Capital Losses Expiry of ABILs Streaming of Non-Capital Losses and Farm Losses (a) Non-Capital Losses from a Business (b) That Business (c) One Business or Multiple Businesses (d) Continuity of That Business (e) Reasonable Expectation of Profit (f) Deductible from Income from the Same or Similar Business (g) Meaning of Income (h) Substantially all the Income (i) Income Derived Recognition of Accrued Losses (a) Non-Depreciable Capital Property (b) Depreciable Capital Property (c) Eligible Capital Property (d) Inventory (e) Accounts Receivable (f) Suspended losses Recognition of Accrued Capital Gains and Recapture Foreign Currency Debt Debt Forgiveness Scientific Research and Experimental Development Expenditures Investment Tax Credits Resource Expenses Charitable Donation Deductions and Other Gifts CCPC and Capital Dividend Account Foreign Affiliates Anti-Avoidance Rules The General Anti-Avoidance Rule Acquiring Control to Recognize Accrued Losses Deemed Exercise of Rights Resource Property Acquired Prior to the Acquisition of Control Depreciable Capital Property Acquired Prior to the Acquisition of Control Section 69(11) THE ELIGIBLE DIVIDEND REGIME Legislative Purpose Essential Components Eligible Dividends Definition

11 TABLE OF CONTENTS xvii Designation Requirement Non-Resident Shareholders Section 55(2) GRIP GRIP Definition Opening 2006 GRIP Balance Acquisition of a CCPC LRIP Section 89(11) Election Status Changes (Sections 89(4) and 89(8)) Becoming a CCPC Ceasing to be a CCPC Amalgamations (Sections 89(5) and 89(9)) Amalgamated Corporation is a CCPC Amalgamated Corporation is a Non-CCPC Wind-ups (Sections 89(6) and 89(10)) Parent Corporation is a CCPC Parent Corporation is a Non-CCPC EEDD/Part III.1 Tax Liability for Part III.1 Tax Calculation of Part III.1 Tax Relief from Part III.1 Tax Anti-Avoidance and Part III.1 Tax Shareholder Liability Corporate Filing Obligation Conclusion EMPLOYEE STOCK OPTIONS Overview of Section 7: Employee Stock Options Tax Consequences to the Employee Grant of Employee Stock Options Exercise of Employee Stock Options (a) Partial Dispositions of Shareholdings (b) Relief from Taxation for Certain Dispositions of Shares Dispositions of Employee Stock Options Death of Employee Holding Employee Stock Option Deduction in Computing Taxable Income (a) Employee Stock Options (b) CCPC options Adjusted Cost Base Considerations Tax Consequences to Employer or Issuer Consequences in Computing Income Withholding Obligations Employee Stock Options in the Context of Extraordinary Transactions Exchanging Employee Stock Options: Section 7(1.4)

12 xviii TABLE OF CONTENTS (a) Use of Exchanges under Section 7(1.4) (b) Interaction Between Section 7(1.4) and Deduction in Computing Taxable Income (c) Exchange of Employee Stock Options: Issuer Considerations Eliminating Options in the Context of a Cash Takeover Bid, Going Private Transaction, or other Significant Reorganization (a) Accommodating Exercise of Options (b) Surrender of Options for Cash (c) Cancellation of Options for No Consideration Repricing Options Stock Dividends, Subdivisions and Consolidations Index