Income Tax Act — I-3.3 248
hat, at the time the taxpayer acquired the property, one of the main reasons for the acquisition was to make a gift of the property to a qualified donee. Non-arm’s length transaction (36) If a taxpayer acquired a property, otherwise than by reason of the death of an individual, that is the subject of a gift to which subsection (35) applies because of subparagraph (35)(b)(i) or (ii) and the property was, at any time within the 3-year or 10-year period, respectively, that ends when the gift was made, acquired by a person or partnership with whom the taxpayer does not deal at arm’s length, for the purpose of applying subsection (35) to the taxpayer, the cost, or in the case of capital property, the adjusted cost base, of the property to the taxpayer immediately before the gift is made is deemed to be equal to the lowest amount that is the cost, or in the case of capital property, the adjusted cost base, to the taxpayer or any of those persons or partnerships immediately before the property was disposed of by that person or partnership. Non-application of subsection (35) (37) Subsection (35) does not apply to a gift (a) of inventory; (b) of real property or an immovable situated in Canada; (c) of an object referred to in subparagraph 39(1)(a)(i.1), other than an object acquired under a gifting arrangement (as defined in subsection 237.1(1)) that is a tax shelter; (d) of property to which paragraph 38(a.1) or (a.2) applies; (e) of a share of the capital stock of a corporation if (i) the share was issued by the corporation to the donor, (ii) immediately before the gift, the corporation was controlled by the donor, a person related to the donor or a group of persons each of whom is related to the donor, and (iii) subsection (35) would not have applied in respect of the consideration for which the share was issued had that consideration been donated by the donor to the qualified donee when the share was so donated; (f) by a corporation of property if (i) the property was acquired by the corporation in circumstances to which subsection 85(1) or (2) applied, (ii) immediately before the gift, the shareholder from whom the corporation acquired the property controlled the corporation or was related to a person or each member of a group of persons that controlled the corporation, and (iii) subsection (35) would not have applied in respect of the property had the property not been transferred to the corporation and had the shareholder made the gift to the qualified donee when the corporation so made the gift; or (g) of a property that was acquired in circumstances where subsection 70(6) or (9) or 73(1), (3) or (4) applied, unless subsection (36) would have applied if this subsection were read without reference to this paragraph. Artificial transactions (38) The eligible amount of a particular gift of property by a taxpayer is nil if it can reasonably be concluded that the particular gift relates to a transaction or series of transactions (a) one of the purposes of which is to avoid the application of subsection (35) to a gift of any property; or (b) that would, if this Act were read without reference to this paragraph, result in a tax benefit to which subsection 245(2) applies. Substantive gift (39) If a taxpayer disposes of a property (in this subsection referred to as the substantive gift ) that is a capital property of the taxpayer, to a recipient that is a registered party , a registered association or a candidate , as those terms are defined in the Canada Elections Act , or that is a qualified donee, subsection (35) would have applied in respect of the substantive gift if it had been the subject of a gift by the taxpayer to a qualified donee, and all or a part of the proceeds of disposition of the substantive gift are (or are substituted, directly or indirectly in any manner whatever, for) property that is the subject of a gift or monetary contribution by the taxpayer to the recipient or any person dealing not at arm’s length with the r