Under s. 118.1(13)(c), where a qualified donee that disposes of non-qualifying securities (“NQS”) that were gifted to it, the amount of the original gift will be deemed in some circumstances to equal the fair market value of the “consideration” received by the donee for that subsequent disposition. Is the FMV “of any consideration received by the donee for the disposition” of the NQS not limited to the specific concept of "proceeds of disposition" under s. 54, and may include an s. 84(3) deemed dividend received by the donee on that disposition (where it is a share redemption)? CRA responded:
[G]enerally speaking, and in the absence of any indication to the contrary … the notion of "consideration" is broad enough to encompass any amount, good or service received upon the disposition of property.
The CRA is of the view that the word "consideration" in the phrase "fair market value of any consideration … received by the donee for the disposition … of the security" in paragraph 118.1(13)(c) must be given the broad meaning generally accepted in the jurisprudence. Thus, for the purposes of paragraph 118.1(13)(c), the expression "consideration received for the disposition" is not limited to "proceeds of disposition" as defined in section 54.
Consequently, the CRA is of the view that for the purposes of paragraph 118.1(13)(c), the consideration received by the qualified donee for the disposition of a NQS may include the portion of such consideration that is a deemed dividend received by the qualified donee pursuant to subsection 84(3) on a redemption of shares.