A corporation which was intended to qualify as an NPO under s. 149(1)(l) owned an apartment building which it leased to tenants who also held all its common shares in proportion to the relative size of their apartments. The leases were rent-free except for an obligation to pick up a proportionate share of property costs (described as being economically analogous to condo fees), and presumably were very long-term leases. A third-party appraisal indicated that the property had a nominal value because of the effect of the leases.
It was proposed that the corporation transfer undivided interests in the property to its shareholders in proportion to their relative shareholdings so that each would acquire a co-ownership interest proportionate to the relative size of that transferee’s apartment. Such transfer would result in an extinguishing of the leases. The consideration paid by the shareholders would be a proportionate fraction of the property’s nominal appraised value.
CRA gave what, in form, was a ruling, that there would be no s. 15(1) (or 246(1)) benefit to the extent that the FMV of the share of the real property so transferred to each shareholder was equal to or less than the FMV of the consideration paid therefor and, on a similar assumption that the aggregate consideration and the property’s FMV did not exceed its ACB, the corporation would not realize a gain. CRA did not rule at all on whether the corporation qualified as an NPO.