Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Revenue Canada Round Table
Tax Executives Institute, Inc.
1995 Annual Canadian Tax Conference
Question #21
SUBSECTION 85(1) ELECTION
All of the outstanding common shares of Opco, a taxable Canadian corporation, are held by Publico, another taxable Canadian corporation. Opco files articles of amendment to authorize a class of redeemable retractable preferred shares. Publico will exchange half of the issued outstanding common shares of Opco for redeemable retractable preferred shares and one common share of Opco.
Would the Minister confirm that it is possible for Publico and Opco to file an election pursuant to subsection 85(1) of the Income Tax Act (the "Act") and that subsections 86(1) and (2) of the Act are not applicable by virtue of subsection 86(3) ?
Department's position
For subsection 85(1) to apply to a transaction, there has to be, among other conditions, a disposition of a property by a taxpayer to a taxable Canadian corporation. As stated in the answer given to Question #20 at the 1991 Revenue Canada Round Table (Canadian Tax Foundation conference), it is the Department's view that a disposition to a corporation occurs when shares received by a taxpayer from the corporation have rights sufficiently different from the rights of the shares of the corporation given in exchange.
However, depending on the circumstances, the Department will consider the application of subsection 245(2) when the subsection 85(1) rollover is done for the purpose of creating classes of shares having adjusted cost bases that are not in proportion to their fair market values.
Author: M. Ton-That
File: 951075
Date: April 27, 1995