A holds 50 common shares of Opco with a nominal adjusted cost base and paid-up capital and fair market value of $500,000, and B holds the other 50 common shares (also with a $500,000) FMV) with the same nominal PUC and an ACB of $100,000. A wishes to sell 30 of his shares to B for $300,000. B transfers his shares to Newco under s. 85 in exchange for a $100,000 note and common shares. Newco borrows $300,000 from a bank and purchases 30 Opco shares from A. Newco and Opco then amalgamate. Would CRA consider that s. 84(2) or 245(2) applied to the sale of shares by A or B to Newco?
CRA acknowledged that it was unlikely that s. 84(2) applied given that the amalgamation by itself would not produce a “winding-up, discontinuance or reorganization” of Opco’s business. However, it could not be clear on this point in the absence of more information, viz.:
information regarding the nature of the business carried on by Opco, the composition of the assets of Opco (for example, the level of liquidity), the magnitude of the surplus of the corporation or the time within which the loan from the financial institution and the note due to Mr. B would be repaid by Amalco.
CRA indicated that whether s. 84.1 applied turned on the factual question whether there was arm’s-length dealing, without commenting much further, nor could it comment on the application of GAAR to the bare-bone facts.