7 July 2010 External T.I. 2010-0370611E5 F - Purchase of Shares by Subsidiary - Sec. 245 -- summary under Subsection 84.1(1)

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 shares of OPCO (a private corporation), accomplished a sale of his shares so as to produce capital gains treatment as a result of OPCO subscribing $200,000 in cash for shares of a Newco (Subco), with Subco then buying the OPCO shares of Mr. X for such cash. CRA confirmed that its position that the individual potentially could realize the capital gain did not depend on there being a s. 87 or 88 merger of Newco and the corporation. The assumption of there being no merger was “aimed at situations that could involve taxpayers who, for example, would be tempted to use tax base created between Opco and Subco in an abusive manner.”