Principal Issues:
For purposes of the (clause 248(1)(a)(i)(B) of the definition of short-term preferred share and subparagraph 248(1)(f)(ii) of the definition of taxable preferred share [hereinafter the "Excepting Provisions"], will the CRA allow a share of the issuing corporation to be acquired for an amount equal to its fair market value determined with no account being taken of the discount for minority interest.
Position:
A minority discount, if any, should be applied in determining the fair market value of a taxable preferred share and a short term preferred share, at the time described in subparagraph 248(1)(f)(ii) of the Act and clause 248(1)(a)(i)(B) of the Act, respectively.
Reasons:
To the extent that no account is taken of any "minority discount" in determining an amount for which a share could be repurchased under the terms of the agreement to acquire the share, it is possible that this amount could exceed the share's fair market value. This position is supported by jurisprudence (see below) and CRA published position (see below). Moreover, in connection with file # 911137, Finance was consulted on this very issue and in regards to the Excepting Provisions, Finance confirmed that "fair market value means fair market value and that if it was intended that minority discount be excluded in the calculation of fair market value the legislation would specifically so state."