P. Mason (613) 957-2109
XXXX
January 5, 1988
Dear Sirs:
Re: Subsection 110.6(7) of the Income Tax Act (the "Act")
In your letter of September 15, 1987, you asked that we comment on your interpretation of how the Act will apply to a proposal outlined in that letter, once the June 1987 White Paper proposals are implemented.
Your proposal involved a transfer of assets to a company pursuant to subsection 85(1) of the Act followed by a sale of shares of the company. We understand the fair market value of the shares to be issued in respect of the subsection 85(1) transfer does not approximate the fair market value of the assets being transferred.
Assurance as to the tax consequences of proposed transactions will only be provided in response to a request for an advance income tax ruling. The procedures for requesting an advance income tax ruling are as stated in Information Circular 70-6R, and the Special Release thereto. Requests of the type submitted should normally be the subject of an advance income tax ruling request, although we would at present be unable to issue rulings in respect of the areas which concern you. When the draft legislation implementing the White Paper proposals is tabled in the House of Commons, we will be in a position to provide interpretive comments or opinions based on the assumption that such future draft law is not changed when it is subsequently enacted. Rulings will only be given in respect of legislation arising from the White Paper proposals after those proposals have been passed into law, as explained in subparagraph 14(m) of Information Circular 70-6R.
Although we cannot provide a comprehensive response to your request, as explained above, we can advise you of one observation concerning the arrangement described. In our opinion, the proposal outlined by you is described in paragraph 110.6(7)(b) of the Act. Therefore, it is our view that this paragraph would apply to deny any section 110.6 capital gains exemption on any gains realized by any individuals in the series of transactions or events described. Note that "series of transactions or events" is defined in subsection 248(10) of the Act.
The opinion expressed in the previous paragraph is not a ruling, as explained in paragraph 24 of Information Circular 70-6R.
Yours truly,
for Director General Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch