I-3 - Taxation Act

Section 536 Disposition versions

2006-03-01

536. The rules set out in sections 537 to 539 apply where a Canadian corporation, in this division referred to as the “particular corporation”, issues a share of any particular class of its capital stock to a taxpayer in exchange for capital property owned by the taxpayer that is a share, in this division referred to as the “exchanged share”, of a particular class of the capital stock of a second corporation which is a taxable Canadian corporation.

However, they do not apply where

(a)  the taxpayer and the particular corporation were, immediately before the exchange, not dealing with each other at arm’s length, otherwise than by reason of a right referred to in paragraph b of section 20 that is a right of the particular corporation to acquire the exchanged share, or the taxpayer and the corporation made an election under section 518 or 529 in respect of the exchanged share;

(b)  immediately after the exchange, the taxpayer or persons with whom the taxpayer is not dealing at arm’s length, separately or together, controlled the particular corporation or owned shares of the capital stock thereof having a fair market value of more than 50% of that of all of the outstanding shares of its capital stock;

(c)  the taxpayer receives a consideration other than a share of the particular class of the capital stock of the particular corporation in exchange for the exchanged share, except where such other consideration results from the disposition to the particular corporation of a share of the capital stock of the second corporation other than the exchanged share; or

(d)  the taxpayer is a foreign affiliate of another taxpayer resident in Canada at the end of the taxation year of the taxpayer in which the exchange occurred and the taxpayer has included any portion of the gain or loss, otherwise determined, from the disposition of the exchanged share in computing the taxpayer’s foreign accrual property income, within the meaning of section 579, for that taxation year.

1975, c. 22, s. 122; 1978, c. 26, s. 95; 1989, c. 77, s. 56; 1990, c. 59, s. 196; 1994, c. 22, s. 198; 1995, c. 49, s. 141; 1997, c. 3, s. 71; 2004, c. 8, s. 107.