4 May 2000 External T.I. 1999-0007725 - EXCLUDED DIVIDENDS

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether an "agreement in respect of the shares..."

Position: Question of fact.

Reasons: Must examine the terms and conditions of the shares or the particular agreement.

XXXXXXXXXX 							1999-000772
B. Kerr
Attention:  XXXXXXXXXX 

May 4, 2000

Dear Sirs:

Re: Part VI.1 Tax and Excluded Dividends

This is in response to your letter of June 14, 1999, wherein you requested our views on the application of subsection 191(4) of the Income Tax Act (the "Act").

You described two specific situations and have asked whether, in the first case , a directors resolution to redeem shares, or in the second case, a share purchase agreement to repurchase shares at a redemption amount would be considered "an agreement in respect of shares of the capital stock of the corporation", for the purposes of paragraph 191(4)(c) of the Act.

Our Comments

The situation outlined in your letter involves an actual fact situation. To the extent that it relates to a past transaction you should contact the appropriate Tax Services Office, since the review of such transactions fall within their responsibility and it is the practice of the CCRA not to comment on such transactions when the identities of the taxpayers are not known. In the case of a proposed transaction, assurance as to the tax consequences of actual proposed transactions will only be given in the context of an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular IC-70-6R3 dated December 30, 1996. In particular we refer to paragraph 15(j) thereof concerning requests for a determination of fact. However, we can offer the following general comments.

In order to determine whether an agreement or resolution to redeem shares would constitute an "agreement in respect of the shares of the capital stock of the corporation", the CCRA would have to examine all of the facts, terms and conditions pertaining to the share issue or the purchase agreement relating to the particular shares in question.

The Concise Oxford dictionary defines the term "agreement" to mean "mutual understanding;...arrangement undertaken by and legally binding on parties; holding of similar opinion; state of being harmonious;...".

In the Nowegijick case (83 DTC 5041), it was stated that:

"the words "in respect of" are, in my opinion, words of the widest possible scope. They import such meanings as "in relation to", "with reference to" or "in connection with". The phrase "in respect of" is probably the widest of any expression intended to convey some connection between two related subject matters."

It would seem that generally an agreement in respect of a share would not include provisions contained solely in the terms and conditions of the share. An agreement between a shareholder and a third party whereby the third party undertakes to fund the redemption of the shares is clearly an agreement in respect of a share.

We trust that these comments will be of assistance.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch