Revenue Canada Taxation
January 27, 1982
E. Mikhail (613) 995-1787
Dear Sirs:
This is in reply to your letter of July 8, 1981 in which you enquired about the Department's position on whether the tax liability that flows to a transferee on a subsection 85(1) rollover transaction, should be reflected in the valuation of the property transferred.
It is the Department's position that the tax liability that flows to a transferee on a rollover should not be reflected in the valuation of the property transferred, unless the transferor dies or the transferred property is disposed of by the transferee shortly after the rollover and the tax liability is imminent and can be calculated with certainty. Where the tax liability of the transferee is justified to be taken into account in valuing the property transferred and the transferee is a Canadian-controlled private corporation, we feel the refundable portion of the dividend refund applicable to the capital gain should reduce the tax liability provided the circumstances are such that it is reasonably likely that the dividend refund will be paid. This would be the case where the transferee pays a taxable dividend from the proceeds of disposition of the property transferred or where the transferor controls the transferee and intends to pay a taxable dividend and the transferee has sufficient funds to make the payment.
It is our intention to assist the objectives of the Department of Finance with respect to the exchanges of property rules provided the capital property is not, in the true sense rental property and is primarily owned by an associated company for bona fide corporate organization purposes, etc.
Director General Corporate Rulings Directorate