Mr. X, who holds all the common shares of Corporation, exchanges his common shares under s. 51 for preferred shares having an equivalent fair market value and subscribes for common shares having a nominal value. He then sells the new common shares at their fair market value to a trust of which he is the beneficiary but not the settlor. Alternatively, he sells a rental property to the trust an takes back an interest-bearing or non-interst-bearing unpaid balnce of the trusty. Does s. 75(2) apply respecting the sale of either property (the "Property")? What if there is a price adjustmetn clause which then is engaged? CRA stated (TaxInterpretations translation):
Taking into account…Sommerer, the sale of the Property by Mr. X to Trust, at a stipulated price and for consideration equal to its FMV, does not result in the income from the Property being attributed to Mr. X by virtue of ITA subsection 75(2). However, the Property acquired by Trust must not be a property substituted for a property otherwise contributed by Mr. X. ...
[T]he CRA will recognize a price adjustment clause in computing the income of all parties where all of the conditions described in paragraph 1.5 of the Folio are met.