In an ITA 86 exchange of shares in a reorganization, if the transferor received non-share consideration in excess of the PUC of the old shares, the PUC of the new shares issued will be reduced to nil.

Question

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According to subsection 86(2.1) of the Income Tax Act (ITA), if a transferor receives non-share consideration in excess of the PUC of the old shares in an ITA 86 reorganization, the PUC of the new shares issued will be reduced to nil. This provision is designed to prevent the transferor from avoiding tax by receiving non-share consideration in excess of the PUC of the old shares.

In an ITA 86 Exchange of Shares in a Reorganization