Update on Subsection 95(6)
Paragraph 95(6)(b) applies, inter alia, where a person acquires or disposes of a share, and the principal purpose of the acquisition or disposition is to avoid, reduce or defer tax. If the paragraph applies, the acquisition or disposition of the share is deemed not to have taken place. The CRA considers that subsection 95(6) applies to various relationships involving foreign affiliates and financing structures. At the 2004 CTF annual conference, the CRA said it could consider identifying examples of structures that do not offend subsection 95(6).
Question
Can the CRA provide a follow-up?
Response
The CRA continues to be of the view that subsection 95(6) is a broadly worded anti-avoidance rule. Since the 2004 CTF Conference, the CRA has been preparing some examples of structures where it considers that paragraph 95(6)(b) will apply, and of structures where it considers that paragraph 95(6)(b) will not apply. The CRA intends to publish the examples in an ITTN at some future date. Completion of the ITTN has been postponed pending the outcome of the Univar Canada Ltd case that was heard in the Tax Court of Canada in May 2005. However, some of the draft examples were discussed during the CRA roundtable at the May 2005 International Fiscal Association (“IFA”) Conference in Toronto.
Representatives of the Income Tax Rulings Directorate, the Tax Avoidance and Special Audits Division, and the International Tax Directorate in Head Office will review all potential subsection 95(6) reassessments.