A couple will transfer a co-owned immovable – that is used 75% in the operation of an active business of a corporation owned by one of them and 25% for rental to third parties – to the corporation on a rollover basis in consideration for shares with a FMV equaling that of the immovable. After indicating that it would regard the building as being “an asset used principally in an active business carried on by the corporation” following the rollover transaction, CRA went on to state:
Paragraph 110.6(7)(b) states that the capital gains exemption in subsections 110.6(2) and (2.1) is not available to an individual on the disposition of a property where
- a corporation or partnership acquires a property for consideration that is significantly less than its fair market value;
- the disposition of the property by the individual is part of the same series of events or transactions as the acquisition of the property by the corporation or partnership.
In this case, the taxpayer's corporation and his spouse acquire the immovable in consideration for preferred shares. According to the information you have provided, the fair market value of those shares at the time of the transfer will be equal to the fair market value of the immovable. Consequently, since the first condition for the application of paragraph 110.6(7)(b) is not satisfied, the CRA is of the view that this provision cannot be used to prevent the taxpayer and spouse from claiming the capital gains exemption.