I-3 - Taxation Act

Section 112.3.2 Disposition versions

2021-06-04

112.3.2. If a corporation that is not resident in Canada (in this section referred to as the “original corporation”) and that is governed by the laws of a foreign jurisdiction undergoes a division under those laws that results in all or part of its property and liabilities becoming the property and liabilities of one or more other corporations not resident in Canada (each of which is referred to in this section as a “new corporation”) and, as a consequence of the division, a shareholder of the original corporation acquires one or more shares (in this section referred to as “new shares”) of the capital stock of a new corporation at a particular time, the following rules apply:

(a)  except to the extent that any of subparagraphs i to iii of subparagraph a.1 of the first paragraph of section 112 or subparagraph b of that first paragraph applies, without reference to this section, to the acquisition of the new shares

i.  in the case where, for each class of shares of the capital stock of the original corporation of which shares are held by the shareholder immediately before the division, new shares are received at the particular time by shareholders of that class on a pro rata basis in respect of all the shares (in this section referred to as the “original shares”) of that class, the following presumptions apply:

(1)  at the particular time, the original corporation is deemed to have distributed, and the shareholder is deemed to have received, as a dividend in kind in respect of the original shares, the new shares acquired by the shareholder at that time, and

(2)  the amount of the dividend in kind received by the shareholder in respect of an original share is deemed to be equal to the fair market value, immediately after the particular time, of the new shares acquired by the shareholder at the particular time in respect of the original share, and

ii.  in any case where subparagraph i does not apply, the original corporation is deemed, at the particular time, to have conferred a benefit on the shareholder equal to the fair market value, at that time, of the new shares acquired by the shareholder as a consequence of the division;

(b)  any gain or loss of the original corporation from a distribution of the new shares as a consequence of the division is deemed to be nil; and

(c)  each property of the original corporation that becomes at any time property of the new corporation as a consequence of the division is deemed

i.  to have been disposed of by the original corporation immediately before that time for proceeds of disposition equal to the property’s fair market value, and

ii.  to have been acquired by the new corporation at that time at a cost equal to the proceeds of disposition determined in accordance with subparagraph i.

2021, c. 18, s. 26.