Share-for-Share Exchanges

The Income Tax also accommodates share-for-share exchanges between a shareholder and a corporation. Section 86 of the Income Tax Act allows a deferral of income tax for a shareholder who, in the course of a reorganization of the capital of a corporation, disposes of all of the shareholder’s shares of a class for consideration that includes other shares of the corporation.

Section 85.1 allows a tax-deferred rollover to a shareholder who exchanges shares of Canadian corporation for shares of a Canadian purchaser corporation in the course of an arm’s length sale of the acquired corporation’s shares.

Section 51 generally allows a tax-deferred transfer of property where a taxpayer exchanges a share or a convertible bond, debenture or note of a corporation for other shares in the same corporation.

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