Income Tax Act — I-3.3 85
section and paragraph 85(1)(e.2), wholly owned corporation of a taxpayer means a corporation all the issued and outstanding shares of the capital stock of which (except directors’ qualifying shares) belong to (a) the taxpayer; (b) a corporation that is a wholly owned corporation of the taxpayer; or (c) any combination of persons described in paragraph 85(1.3)(a) or 85(1.3)(b). Definitions (1.4) For the purpose of subsection 85(1.1), financial institution , mark-to-market property and specified debt obligation have the meanings assigned by subsection 142.2(1). Transfer of property to corporation from partnership (2) Where (a) a partnership has disposed, to a taxable Canadian corporation for consideration that includes shares of the corporation’s capital stock, of any partnership property (other than an eligible derivative , as defined in subsection 10.1(5), of the partnership if subsection 10.1(6) applies to the partnership) that was (i) a capital property (other than real or immovable property, an option in respect of such property, or an interest in real property or a real right in an immovable, if the partnership was not a Canadian partnership at the time of the disposition), (ii) a property described in any of paragraphs 85(1.1)(c) to 85(1.1)(f), or (iii) a property that would be described in paragraph 85(1.1)(g) or 85(1.1)(g.1) if the references in those paragraphs to “taxpayer” were read as “partnership”, and (b) the corporation and all the members of the partnership have jointly so elected, in prescribed form and within the time referred to in subsection 85(6), paragraphs 85(1)(a) to 85(1)(i) are applicable, with such modifications as the circumstances require, in respect of the disposition as if the partnership were a taxpayer resident in Canada who had disposed of the property to the corporation. Computing paid-up capital (2.1) Where subsection 85(1) or 85(2) applies to a disposition of property (other than a disposition of property to which section 84.1 or 212.1 applies) to a corporation by a person or partnership (in this subsection referred to as the “taxpayer”), (a) in computing the paid-up capital in respect of any particular class of shares of the capital stock of the corporation at the time of, and at any time after, the issue of shares of the capital stock of the corporation in consideration for the disposition of the property, there shall be deducted an amount determined by the formula (A - B) × C/A where A is the increase, if any, determined without reference to this section as it applies to the disposition of the property, in the paid-up capital in respect of all the shares of the capital stock of the corporation as a result of the acquisition by the corporation of the property, B is the amount, if any, by which the corporation’s cost of the property, immediately after the acquisition, determined under subsection 85(1) or 85(2), as the case may be, exceeds the fair market value, immediately after the acquisition, of any consideration (other than shares of the capital stock of the corporation) received by the taxpayer from the corporation for the property, and C is the increase, if any, determined without reference to this section as it applies to the disposition of the property, in the paid-up capital in respect of the particular class of shares as a result of the acquisition by the corporation of the property; and (b) in computing the paid-up capital, at any time after November 21, 1985, in respect of any class of shares of the capital stock of a corporation, there shall be added an amount equal to the lesser of (i) the amount, if any, by which (A) the total of all amounts each of which is an amount deemed by subsection 84(3), 84(4) or 84(4.1) to be a dividend on shares of that class paid after November 21, 1985 and before that time by the corporation exceeds (B) the total of such dividends that would be determined under clause 85(2.1)(b)(i)(A) if this Act were read without reference to paragraph 85(2.1)(a)