I-3 - Taxation Act

Section 540.2 Disposition versions

2015-10-21

540.2. Subject to section 540, and subsection 2 of section 95 of the Income Tax Act (R.S.C. 1985, c. 1, (5th Suppl.)) when it has effect for the purposes of section 579, the rules set out in sections 540.3 and 540.4 apply where a corporation not resident in Canada (in this division referred to as the “foreign corporation”) issues a share 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 foreign share”) of the capital stock of a second corporation not resident in Canada.

However, they do not apply where

(a)  the taxpayer and the foreign 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 foreign corporation to acquire the exchanged foreign 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 foreign 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 the issued share in exchange for the exchanged foreign share, except where such consideration results from the disposition to the foreign corporation of a share of the capital stock of the second corporation other than the exchanged foreign 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

i.  the taxpayer has included any portion of the gain or loss, otherwise determined, from the disposition of the exchanged foreign share in computing the taxpayer’s foreign accrual property income, within the meaning of section 579, for that taxation year, or

ii.  the exchanged foreign share is excluded property, within the meaning of section 576.1, of the taxpayer.

2004, c. 8, s. 109; 2015, c. 21, s. 183.

2006-03-01

540.2. Subject to section 540, and subsection 2 of section 95 of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement) where it has effect for the purposes of section 579, the rules set out in sections 540.3 and 540.4 apply where a corporation not resident in Canada, in this section referred to as the “foreign corporation”, issues a share 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 foreign share”, of the capital stock of a second corporation not resident in Canada.

However, they do not apply where

(a)  the taxpayer and the foreign 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 foreign corporation to acquire the exchanged foreign 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 foreign 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 the issued share in exchange for the exchanged foreign share, except where such consideration results from the disposition to the foreign corporation of a share of the capital stock of the second corporation other than the exchanged foreign 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

i.  the taxpayer has included any portion of the gain or loss, otherwise determined, from the disposition of the exchanged foreign share in computing the taxpayer’s foreign accrual property income, within the meaning of section 579, for that taxation year, or

ii.  the exchanged foreign share is excluded property, within the meaning of section 576.1, of the taxpayer.

2004, c. 8, s. 109.