Income Tax Act (tax considerations) · Freeze & reorganisation mechanics
The price adjustment clause does not reach the amount actually payable
What the check looks for
If CRA reassesses the fair market value of property rolled into the corporation, a price adjustment clause retroactively corrects the share value and prevents a deemed benefit. It only works if it adjusts the amount actually payable on a redemption.
Authority: ITA s. 85; CRA Folio S4-F3-C1
The Income Tax Act sets no requirements for the articles; this is a tax consideration that can follow from how they are drafted.
What goes wrong
No price adjustment clause was found. If CRA reassesses the value of property rolled into the corporation there is no mechanism to correct the share consideration, and the difference can be assessed as a benefit.
What good looks like
A price adjustment clause is present, adjusting the share consideration if its fair market value is redetermined, with retroactive effect to the date of issue. This is what protects a section 85 rollover if CRA reassesses the valuation. Have your lawyer confirm what triggers it and that it reaches the amount paid on a redemption.
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