Background
A not-for profit corporation described in s. 149(1)(l) (the “Corporation”) governed by the CBCA acquired a building from a partnership (“SENC”), without assuming a mortgage on the building, in consideration for granting leases to the various apartments in the building and issuing common shares, allocated in proportion to the floor areas of their leased apartments. SENC pledged, with the consent of the Corporation, the leases and the common shares to the mortgagee.
SENC then sold the leases and the shares for their FMV to various persons (the Owner Shareholders) and used the proceeds to repay the mortgage loan. The Owner Shareholders were required to hold their common shares in proportion to the relative floor areas of their apartments and to bear their share of costs relating to the building in the same way as a condominium corporation does for common costs, but no further.
Accordingly to a third-party appraisal, the FMV of the building is nominal, due to the effect of the leases to the shareholders
Proposed transactions
The Owner Shareholders will purchase undivided interests in the property in proportion to their relative shareholdings and leasehold interests, for purchase prices based on the property’s appraised value, as described above. Such acquisition will result in the termination of their leases.
Rulings
Including that the transfer to the Owner Shareholders would not result in a capital gain to the extent that the FMV of the property and the proceeds of disposition were equal to or less than the property’s ACB and that such transfer would l not give rise to any taxable benefit in the hands of the Owner Shareholders pursuant to ss. 15(1) and 246(1) to the extent that the FMV of the share of the real property so transferred to each of the Owner Shareholders was equal to or less than the FMV of the consideration therefor paid by such shareholder.