Income Tax Act — I-3.3 212.1
Non-arm’s length sales of shares by non-residents 212.1 (1) Subsection (1.1) applies if a non-resident person disposes of shares (in this section referred to as the “subject shares”) of any class of the capital stock of a corporation resident in Canada (in this section referred to as the “subject corporation”) to another corporation resident in Canada (in this section referred to as the “purchaser corporation”) with which the non-resident person does not (otherwise than because of a right referred to in paragraph 251(5)(b)) deal at arm’s length and, immediately after the disposition, the subject corporation is connected (within the meaning that would be assigned by subsection 186(4) if the references in that subsection to “payer corporation” and “particular corporation” were read as “subject corporation” and “purchaser corporation”, respectively, and if section 186 were read without reference to its subsection (6)) with the purchaser corporation. Non-arm’s length sales of shares by non-residents (1.1) If this subsection applies, (a) the amount, if any, by which the fair market value of any consideration (other than any share of the capital stock of the purchaser corporation) received by the non-resident person referred to in subsection (1) from the purchaser corporation for the subject shares exceeds the paid-up capital in respect of the subject shares immediately before the disposition shall, for the purposes of this Act, be deemed to be a dividend (i) in the case that, immediately before the disposition, the purchaser corporation controlled the non-resident person, (A) paid at the time of the disposition by the subject corporation to the non-resident person, and (B) received at that time by the non-resident person from the subject corporation, and (ii) in any other case, (A) paid at the time of the disposition by the purchaser corporation to the non-resident person, and (B) received at that time by the non-resident person from the purchaser corporation; and (b) in computing the paid-up capital at any particular time after March 31, 1977 of any particular class of shares of the capital stock of the purchaser corporation, there shall be deducted that proportion of the amount, if any, by which the increase, if any, by virtue of the disposition, in the paid-up capital, computed without reference to this section as it applies to the disposition, in respect of all of the shares of the capital stock of the purchaser corporation exceeds the amount, if any, by which (i) the paid-up capital in respect of the subject shares immediately before the disposition exceeds (ii) the fair market value of the consideration described in paragraph (a), that the increase, if any, by virtue of the disposition, in the paid-up capital, computed without reference to this section as it applies to the disposition, in respect of the particular class of shares is of the increase, if any, by virtue of the disposition, in the paid-up capital, computed without reference to this section as it applies to the disposition, in respect of all of the issued shares of the capital stock of the purchaser corporation. Deemed consideration (1.2) For the purposes of subsections (1) and (1.1), if, in the absence of this subsection, no consideration would be received by the non-resident person referred to in subsection (1) from the purchaser corporation for the subject shares, the non-resident person is deemed to receive consideration other than shares of the capital stock of the purchaser corporation from the purchaser corporation for the subject shares, the fair market value of which is equal to the amount, if any, by which the fair market value of the subject shares disposed of by the non-resident person exceeds the amount of any increase because of the disposition in the fair market value of the shares of the capital stock of the purchaser corporation. Idem (2) In computing the paid-up capital at any particular time after March 31, 1977 of any particular class of shares