A Federal Court of Appeal ruling will make it very difficult for executives and employees to treat share transfers from their companies as capital gains rather than income.
The decision involved Kitchener, Ont.-based D2L Corp., whose intention was to distribute appreciated shares of the company, held in a trust, to various employees. In turn, the employees sold the shares to the controlling shareholder and sought to treat the profit as capital gains, which attract tax at one half the rate on normal income. They did so in the belief that their gains were governed by the rules applicable to prescribed trusts under the Income Tax Act regulations.
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