| November 7, 1990 | |
| D.R. Snider, Section Chief | Rulings Directorate |
| Advanced Audit & Investigations | D. Watson |
| Training Programs Section | 957-2121 |
| Centre for Career Development | |
| Attention: D. Sturtevant | 7-4761 |
SUBJECT: Review of Corporate Reorganization Material Lesson 4 Roll-overs (Section 85)
We have reviewed the Instructors Lesson Plan and the Participants Package for the lesson on section 85 of the Corporate Reorganizations Course Material as requested in your memorandum of April 3, 1990.
The following comments may be of assistance to your instructors.
1. Page HO/6.1 describes the application of paragraph 85(1)(e.1) of the Act. It is worth noting that an administrative exception is allowed for butterfly transactions, an example of which can be found in paragraph 18(h) of ATR-27.
2. Page An/13 describes a conflict between IT-291R and IT-432. IT-291R is currently being rewritten and it is proposed that the comments on subsection 15(1) of the Act be revised such that they are consistent with the interpretation thereof in IT-432. However, subsection 15(1) is not applicable in the case of a transfer of property from a parent corporation to its wholly-owned subsidiary.
3. On page HO/11.10 it is correctly stated that paragraph 85(1)(e.2) of the Act applies to the transfer of assets from a parent corporation to its wholly-owned subsidiary. However, participants should be advised that in the Draft Amendments to the Income Tax Act and Related Statutes dated July 1990, it is proposed that the law be changed such that this type of transaction will not be subject to the application of paragraph 85(1)(e.2) of the Act.
4. In the example on page 11.8, the full excess of $90,000 should be applied pursuant to paragraph 85(1)(e.2). The transferee corporation is a "person related to the taxpayer" for the purposes of that paragraph.
5. The note on page 3.7 says that "(1)(c) is the overriding paragraph". For a better understanding of the relationships between paragraphs (b), (c), (c.1), (d) and (e) refer to paragraph 18 of IT-291R.
6. In the first illustration on page 14.3, it is unclear as to why the common shares are worth $30 before the transfer and $20 after. The problem can be eliminated by changing the words "1,000 shares" to "1,500 shares" on the last line of the paragraph.
7. On pages 19.7 and 19.9, the references to 89(1)(c)(iii) should read 89(1)(ii)(C).
8. See also the attached draft for minor wording changes.
If you have any questions or concerns please contact the writer.
M.A. HiltzDirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch