Section 84.1 (non-arm’s length share sales)

You meet section 84.1 when an owner moves shares of the operating company into a corporation the owner or a family member controls, for example as a step before a sale. The section reads the transfer as a dividend rather than only a sale, to the extent of a formula in subsection 84.1(1), and the Canada Revenue Agency’s archived bulletin IT-489R, which it says it will not be updating, describes its scope in the same terms.

When the section applies

• The seller is a taxpayer resident in Canada, other than a corporation
• The shares are capital property of a corporation resident in Canada
• The buyer is a corporation with which the seller does not deal at arm’s length
• Immediately after the sale, the two corporations would be connected

The formula and its exceptions

The deemed dividend is worked out by a formula that uses the greater of the paid-up capital and the adjusted cost base of the shares sold. Subsection 84.1(2) can deem parties to be at or not at arm’s length, including for certain intergenerational business transfers that meet the conditions in subsections 84.1(2.31) and (2.32). Whether it reaches a non-resident seller is a separate question. Ask for both figures and the control facts before relying on any outcome.