4 November 2011 External T.I. 2011-0413171E5 - Unclaimed shares on corporate takeover.

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.

Principal Issues: Whether 50% of the value of shares being held in trust for minority shareholders upon a takeover, that have not been claimed, is required to be remitted.

Position: No. It cannot be said that these shareholders are "unknown" for the purposes of subsection 153(4).

Reasons: See below.

XXXXXXXXXX 				2011-041317
					Richard Aronoff
					613-941-7239
Attention: XXXXXXXXXX 

November 4, 2011

Dear XXXXXXXXXX :

Re: Application of subsection 153(4) to Unclaimed Shares on Corporate Takeover

This is in reply to your email of July 6, 2011 concerning the application of subsection 153(4) of the Income Tax Act (the "Act") to unclaimed shares on a corporate takeover.

The fact situation is that a public company ("Acquireco") acquired the publicly traded shares of another public company (the "Targetco") pursuant to a takeover bid. The transaction was structured such that the offer consideration consisted only of shares of Acquireco. The transaction fits within the rollover provisions of section 85.1 of the Act.

There is a minority of shareholders of Targetco, representing about three percent, who did not tender their shares as part of the takeover. These shares have been acquired by Acquireco pursuant to the compulsory acquisition provisions of the applicable corporate law statute. The offer consideration is being held in trust for these minority shareholders by a depository until such time as they come forward and tender their share certificates in exchange for the offer consideration.

Paragraph 153(4)(c) provides, in summary, that where at the end of a taxpayer's taxation year the person who is beneficially entitled to an amount that has been received by the taxpayer before that year as proceeds of disposition of property is unknown to the taxpayer, the taxpayer is required to make a remittance to the Receiver General. The amount of the remittance, which is made on account of the tax payable under this Act by that person, is equal to 50% of the total of all amounts by which the proceeds of disposition of a property exceed the total of any outlays and expenses made or incurred by the taxpayer for the purpose of disposing of the property. The remittance must be made by the taxpayer on or before the day that is 60 days after the end of the taxpayer's year.

Your firm is asking whether 50% of the value of the shares of Acquireco that is being held in trust for the minority shareholders is required to be remitted as it is not cash that is being held and there is no gain on the transaction as it is structured to provide a rollover.

Subsection 248(1) of the Act defines "amount" to, generally, mean money, rights or things expressed in terms of the amount of money or the value in terms of money of the right or thing. The shares being held in trust represent a right to the pro-rate residual value of the corporate assets, net of liabilities. The value of these shares can be expressed in terms of an amount of money. Further, the amount required to be remitted under paragraph 153(4)(c) refers to the proceeds of disposition not to a gain on the proceeds of disposition.

You have indicated that, based on the information contained in the share register of Targetco, the shareholders of the untendered shares are known. Provided that Acquireco is certain that the names of the shareholders noted in Targetco's share register are, in fact, the beneficial owners of the unclaimed shares who are entitled to receive an amount from Acquireco, it cannot be said that these shareholders are "unknown" for the purposes of subsection 153(4). This would be the case notwithstanding that their whereabouts may not be known. Consequently, no amounts are required to be remitted. Given that the beneficial owners of the unclaimed shares are known, the appropriate time to issue the required T5008 information returns, pursuant to subsection 230(6) of the Income Tax Regulations is the calendar year in which the proceeds were received by the depository as agent for the shareholders of Targetco. It would contain the recipients' last known address of record.

Should you have any queries or require additional information in regard to this matter, please do not hesitate to contact Richard Aronoff at the telephone number provided at the outset of this letter.

Yours truly,

B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate