15 September 1995 External T.I. 9524085 - REDEMPTION PROCEEDS - SHARE EXCHANGE

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:

amount paid for purposes of subsection 84(3) where shares are part of consideration

Position TAKEN:

amount paid is equal to fair market value of non-share consideration plus PUC of shares issued

Reasons FOR POSITION TAKEN:

paragraph 84(5)(d)

							952408
XXXXXXXXXX							T. Harris

September 15, 1995

Dear Sir:

Re: Repurchase of Shares by a Public Corporation

This is in response to your letter of August 21, 1995 wherein you requested our comments with respect to an offer made by
XXXXXXXXXX

XXXXXXXXXX

Our Comments

The situation described in your letter relates to a specific transaction which has already been completed. Since the responsibility for reviewing the tax consequences of such completed transactions rests with the local tax services offices, we regret that we are unable to comment on the specific situation described in your letter. We can, however, provide the following general comments which may be of assistance to you.

Pursuant to subsection 84(3) of the Income Tax Act (the "Act") where a corporation resident in Canada has redeemed, acquired or cancelled any of the shares of a class of its capital stock, the corporation is deemed to have paid a dividend in an amount equal to the amount, if any, by which the aggregate amount paid by the corporation exceeds the paid-up capital of the particular share or shares. Also, each holder of shares which were redeemed, acquired or cancelled is deemed to have received a proportional share of such dividend. However, where the consideration paid by the corporation includes a share of its capital stock, subsection 84(5) of the Act provides that for purposes of determining the amount paid by the corporation under subsection 84(3), the share is to be valued at an amount equal to the amount by which the paid-up capital of the class of shares to which it belongs has been increased by virtue of the issue of the share. Consequently, the amount paid to a shareholder under subsection 84(3) of the Act where shares of a corporation have been repurchased for consideration which includes cash and one or more other shares of the corporation will be equal to the amount of cash plus the increase in the paid-up capital of the class as a result of the share issue. The value of the shares is not relevant for these purposes.

In addition, although the term "dividend" as defined in subsection 248(1) of the Act includes a stock dividend, we do not believe that shares received as consideration for the redemption of other shares of a corporation would generally constitute a stock dividend. In any event, even if the issue of such shares could be considered a stock dividend, by virtue of paragraph (c) of the definition of "amount" in subsection 248(1) of the Act, the amount of a stock dividend is generally the amount added to the paid-up capital of the corporation as a result of the payment of the dividend.

We trust that our comments will be of assistance.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch