Principal Issues: Whether the butterfly dividends arising on the proposed transactions are exempt under paragraph 55(3)(b) from the application of subsection 55(2).
Position: Yes.
Reasons: Proposed transactions meet the requirements of the Act.
interest on borrowed money used to pay a premium on the cash redemption of convertible debentures is deductible
446
Principales Questions: 1) Whether the interest relating to the part of the borrowings used to repay the principal amount of the debentures should be deductible because of subsection 20(3). 2) Whether the interest relating to the rest of the borrowings used to pay the conversion premium should also be deductible based on the “fill the hole” concept established by the case law and on the fact that the corporation has sufficient accumulated profits to support such portion of the borrowings.
Position Adoptée: 1) Yes. 2) Yes.
Raisons: 1) Application of the Act. 2) In this case, the retained earnings or accumulated profits will be reduced by the amount of the conversion premium. Accordingly, there will be a reduction of capital corresponding to the amount of the borrowed money.
SDA exception for SAR plans unavailable where dividend equivalents are paid in cash
321
Principal Issues: 1. Does the CRA’s general position on the non-application of the SDA rules to SAR plans apply where the plan provides for dividend equivalents? 2. Will the payment of dividend equivalents on an annual cash basis, rather than by way of additional units, cause the plan to fall outside of the CRA’s general position on SARs? 3. If so, will the plan be an SDA? 4. Is subsection 6(14) applicable to such an offside plan so as to provide partial relief for the main component of the plan?
Position: 1. Yes, provided that the dividend equivalents are credited in the form of additional units, and the eventual settlement is on the same basis and timeline as the whole of the unit. 2. Yes. 3. Question of fact, but not if the plan is exempt by virtue of the exception for three-year bonus plans in paragraph (k) of the SDA definition. 4. No.
Reasons: 1. The grant of the units is still considered to be solely for future services. 2. The right to an accelerated payment results in the award not being considered solely for future services. 3. A SAR unit with an accelerated dividend equivalent feature can be considered to be a bonus or similar payment and thus excluded from the SDA definition under paragraph (k) if paid within the 3-year window. 4. The dividend equivalent component is not separate enough from the main component to be a plan or arrangement in its own right.
