| 19(1) | 5-900976 |
| R.B. Day | |
| (613) 957-2136 | |
| EACC9435 |
July 13, 1990
19(1)
We are writing in reply to your letter of May 25, 1990, wherein you requested our opinion regarding the income tax implications of the completed transaction described below.
As we understand it 24(1)
The problem, as you see it, is that the way the transaction actually happened the value of the property will be taxed twice. It is firstly a capital gain to the donors as they are required to report fair market value proceeds. Because the donors are not shareholders of the company it appears to you that paragraph 53(1)(c) of the Income Tax Act does not apply nor can you find any other provision to permit a cost base addition to the shares. It therefore appears to you that the fair market value of this land effectively becomes taxable surplus when paid out. For example, assume the land had a fair value of $100,000 on the date of the gift and was sold for $100,000. While there would be no corporate tax on the disposal of the land, there would be tax on the distribution of the cash.
Our Comments
We will respond to your questions in the order in which they appear in your letter.
1. To the best of our knowledge, there is no provision in the Income Tax Act that would permit the shareholders to add the value of the gift to the ACB of their shares, as suggested in your letter.
2. Since your suggested solution to this problem involves corrective action to completed transactions rather than an interpretation of the Income Tax Act, we would suggest that you contact your local district taxation office for their views in this regard.
3. You are correct that this is not a situation in which the Department would wish to give a formal ruling. One way or another, we believe this is a matter that must be worked out with District Office officials.
We trust that our comments will be of assistance to you.
Yours truly,
for Director Business and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch