17%20Other%20Rollovers%20and%20Sale%20of

17%20Other%20Rollovers%20and%20Sale%20of - Chapter 17 Other...

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Chapter 17 – Other Rollovers and Sale of an Incorporated usiness Business
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Introduction • This chapter covers a number of rollover provisions that have not previously been covered: hare exchanges among corporations – Share exchanges among corporations – Share exchanges in the process of reorganizing a corporation – Amalgamations – Wind ups
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Share for Share Exchanges • This rollover takes place under ITA s.85.1 • Shareholders exchange shares in one company for shares of an acquiring company. – Easier to accomplish than a s.85 rollover would be, when there are many diverse shareholders, because it is not necessary for each shareholder to file an election. – The provisions of s.85.1 apply automatically, unless the vendor includes any gain or loss on the transaction in income for the year
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Share for Share Exchanges • Example: – Taxpayer A is the sole shareholder in B Inc., owning 5,000 shares with PUC and ACB of $5,000. X Inc. acquires these shares in exchange for 2,000 of its common shares, which are currently trading for $100 (FMV = $200,000) – If the provisions under s. 85.1 did not exist, A would have a CG f $195,000. of $195,000. – From the perspective of A: • Under these provisions, A is deemed to have disposed of her shares for an amount = to ACB, and to have acquired the shares in X for the same amount. • The PUC of the X Inc. shares will also be limited to $5,000. – From the perspective of X Inc. • The ACB of the acquired shares will be the lesser of FMV and PUC ($5,000) • A PUC reduction will limit the increase in PUC of the purchaser corporation to the amount of the PUC of the shares acquired.
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Share for Share Exchanges • Restrictions on this rollover: – The taxpayer exchanging the shares • must hold the original shares as capital property (they are not held as a temporary investment or inventory) • must deal with the purchasing corporation at arm’s length • or persons with whom she/he does not deal with at arm’s length annot control the purchasing corporation immediately after the cannot control the purchasing corporation immediately after the exchange. Also, they cannot own shares with FMV >50% of the FMV of all shares outstanding – The purchasing corporation • Must be Canadian • Must issue its own shares in the exchange • Can issue only one class of shares – No election can be made under ITA 85(1) or (2) with respect to the shares exchanged. From Text: Do Exercise 17-1 on pg. 785, Self Study Problem 17-1,page 818.
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Exchanges of Shares in a Reorganization • Using s. 86, a single corporation can reorganize it’s capital structure – Applies when a shareholder in a corporation exchanges shares held in at least one class of existing shares, for: uthorized shares in the same company, or • authorized shares in the same company, or • authorized shares in the same company combined with non- share consideration. – In effect, there is a redemption of the currently owned
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This note was uploaded on 01/31/2011 for the course MOS 4462 taught by Professor Ann during the Fall '10 term at UWO.

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17%20Other%20Rollovers%20and%20Sale%20of - Chapter 17 Other...

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