I-3 - Taxation Act

Section 301.1 Disposition versions

2006-03-01

301.1. Notwithstanding section 301, where shares of the capital stock of a corporation have been acquired by a taxpayer in exchange for a capital property described in the said section 301, in circumstances such that, but for this section, section 301 would have applied, where the fair market value of the capital property immediately before the exchange exceeds the fair market value of the shares immediately after the exchange, and where it is reasonable to regard any portion of such excess as a benefit that the taxpayer desired to have conferred on a person related to the taxpayer, the following rules apply:

(a)  the taxpayer is deemed to have disposed of the capital property for proceeds of disposition equal to the lesser of the aggregate of its adjusted cost base to him immediately before the exchange and the excess portion, and the fair market value of the capital property immediately before the exchange;

(b)  the taxpayer’s capital loss from the disposition of the capital property is deemed to be nil; and

(c)  the cost to the taxpayer of all the shares of a particular class acquired in exchange for the capital property is deemed to be that proportion of the lesser of the adjusted cost base to him of the capital property immediately before the exchange, and the aggregate of the fair market value immediately after the exchange of the shares acquired by him, on the exchange, for the capital property and the amount that, but for paragraph b, would have been the taxpayer’s capital loss from the disposition of the capital property that the fair market value, immediately after the exchange, of all the shares of the particular class acquired by him on the exchange is of the fair market value of all the shares acquired by him on the exchange.

1982, c. 5, s. 63; 1986, c. 19, s. 56; 1997, c. 3, s. 71; 2005, c. 23, s. 45.