K.H. Major 613-995-1178
May 2, 1980
Dear XXXX
This is in reply to your letter of February 26, 1980 concerning the application of subsection 85(1) of the Income Tax Act (the Act) to the transfer of common shares between a husband and wife who desire to equalize their shareholdings in two operating companies.
It is our opinion that subsection 85(1) of the Act only applies to a transfer of property from a taxpayer to a Canadian corporation and therefore does not apply to a transfer of property between husband and wife.
Further to our conversation of May 1, 1980 we understand that the transfers between the husband and wife have already taken place. If the shares transferred constituted capital property in the hands of the transferors, subsection 73(1) of the Act may apply to the transfers. Please refer to Interpretation Bulletin IT-258 "Transfer of Property to a Spouse" for an interpretation of the application of sections 73 and 74 of the Act with respect to such transfers.
We trust this information will be of assistance to you.
Yours truly,
for Director Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch
KHM/jw