A private foundation is the sole shareholder of a corporation (whose shares are exempt shares). The corporation transfers publicly listed securities held by the corporation to the foundation for no proceeds. Would what otherwise be a taxable capital gain be deemed to be nil because of the application of s. 38(a.1). CRA responded:
[W]here a taxpayer has disposed of anything by way of gift to any person, paragraph 69(1)(b) will apply to deem the taxpayer to have received proceeds of disposition equal to the fair market value (“FMV”) of the disposed property. Similarly, subsection 69(4) generally provides for deemed proceeds of disposition at FMV where property of a corporation has been appropriated to or for the benefit of a shareholder under certain circumstances. …
As noted above, paragraph 38(a.1) will apply to deem a taxpayer’s taxable capital gain from a disposition of certain securities to be nil when the disposition is the making of a gift to a qualified donee. Whether a transfer of property constitutes a gift is a factual determination having regard to the legal meaning of a gift.