The Income Tax Act: Section 86 in Practice

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Author: Matt Sharp

This paper discusses how section 86 of the Income Tax Act allows for the exchange of shares within the same corporation to occur on a tax-deferred basis when certain criteria are met. It identifies how section 86 differs from section 51, notes certain issues and situations to watch for, discusses the implications of the tax on split income (TOSI) regime, outlines considerations when working with accountant, shares best practices to implement in anticipation of Canada Revenue Agency review of section 86 transactions, and summarizes post-transaction issues and opportunities.

A standard share exchange agreement is also provided.

This paper is part of a collection presented at LESA’s Tax Law for Corporate/Commercial Transactions program in Calgary on October 17, 2019 and in Edmonton on October 28, 2019.

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