CASE STUDY #5
Recommended Solution:
(1) Review of the Act:
There are no specific provisions within the Act which
would disallow the particular transactions identified in
the case. (2) Identification of a Tax Benefit:
Shelco would recognize the capital gain and recaptured
cost allowance but would not have any assets available to
pay the taxes owed on the transaction. (3) Identification of an Avoidance Transaction:
In this particular case, the primary purpose of the tax
free rollover under section 85 would be to obtain the tax
benefit previously identified. (4) Misuse or Abuse of the Act:
The transfer of property to Shelco under section 85 in
to circumvent the taxes on the capital gain and
recaptured capital cost allowance would appear to
result in a direct misuse of the provisions of the Act.
Therefore, the transaction would not qualify for
exemption from the application of subsection 245(2).(5) Application of GAAR:
In assessing the transactions, we would deny the tax free
transfer of the property to the "shell" corporation. Tax
would, therefore, be payable by the "real" owner of the
property.000162