I-3 - Taxation Act

Section 553.1 Disposition versions

2006-03-01

553.1. Notwithstanding sections 552 and 553, where, immediately before the amalgamation, the fair market value of the shares of the capital stock of a predecessor corporation that belonged to a taxpayer exceeds the fair market value, immediately after the amalgamation, of the shares he has received as consideration, and it is reasonable to regard all or any portion of such excess as a benefit that the taxpayer desires to have conferred on a person related to the taxpayer, the following rules apply:

(a)  the taxpayer shall be deemed to dispose of the shares of the capital stock of the predecessor corporation for proceeds equal to the lesser of their fair market value immediately before the amalgamation and the aggregate of their adjusted cost base to him at the same time, and the amount of the benefit conferred;

(b)  the taxpayer’s capital loss resulting from the disposition of the shares shall be deemed to be nil; and

(c)  the cost to the taxpayer of any share of any class of the capital stock of the new corporation acquired by him on the amalgamation is deemed to be that proportion of the lesser of the adjusted cost base to him, immediately before the amalgamation, of the shares disposed of and the aggregate of the fair market value, immediately after the amalgamation, of all the shares acquired by him on the amalgamation, and the amount that, but for paragraph b, would be the taxpayer’s capital loss from the disposition of the shares, that the fair market value, immediately after the amalgamation, of such share of that class is of the fair market value, at the same time, of the aggregate of the shares so acquired by him.

1982, c. 5, s. 125; 1997, c. 3, s. 71.