QUESTION I 28 GAAR - Sale of Shares of Cashco
An individual owns all the shares of a corporation ("Cashco") the assets of which are primarily liquid assets. The individual sells the shares of Cashco to a corporation with which he deals at arm's length ("Purchaseco"), and claims the capital gains deduction under section 110.6 of the Act. Cashco is then wound up into Purchaseco which uses the liquid assets to pay the purchase price to the individual. Would subsection 245(2) apply to such transactions?
DEPARTMENT'S POSITION
The explanatory notes issued by the Minister of Finance in June 1988 explained the repeal of former subsection 247(1) of the Act by indicating that the provisions of section 245 are broad enough to cover the transactions to which former subsection 247(1) was intended to apply. At the 1986 tax conference we confirmed that subsection 247(1) could apply to a series of transactions such as that described in the question posed.1 It is therefore our view that subsection 245(2) could apply to such transactions.
Prepared by : Lois A. McCarron-McGuire
1 Michael Hilt, "Subsection 247(1) and the 1985 Amendments to the Income Tax Act", in Report of Proceedings of the Thirty-Eighth Tax Conference, 1986 Conference Report (Toronto: Canadian Tax Foundation, 1987), 7:1-7:12, at 7:10.