2017 Advance Income Tax Ruling (2016-0675881R3), CRA ruled that the related party exemption (Paragraph 55(3)(a)) would apply to a proposed internal reorganization, such that Subsection 55(2) would not reclassify a deemed dividend into a capital gain.

2017-10 CORPORATE REORGANIZATION – RELATED PARTY EXEMPTION

In  a  2017  Advance  Income  Tax  Ruling  (2016-0675881R3),  CRA  ruled  that  the  related  party exemption  (Paragraph  55(3)(a))  would  apply  to  a proposed  internal  reorganization,  such  that Subsection  55(2)  would  not  reclassify  a  deemed dividend into a capital gain. The series of transactions effectively  split  up  a  real  estate  corporation  into two new corporations,  each  respectively  owned  by a sibling.  However,  the  parents  retained  voting  control  of  the  two new corporations, rendering them related for the purposes of Paragraph 55(3)(a).

In a supplemental Advance Income Tax Ruling (2017-0704351R3), CRA  opined  that,  provided  the  beneficial  owners  of  the  property remain  unchanged, a change in legal title of the property would not alter their opinion that the related party exception would apply.