It is queried whether Canadian taxpayers are owners of securities held by them through intermediaries in accordance with the Securities Transfer Acts

Since 2005, a security entitlement system (pursuant to Securities Transfer Acts) has been adopted by all the provinces. Under this system for the indirect holding of publicly traded shares and bonds, a person acquires a securities entitlement if a securities intermediary indicates through a book entry that a financial asset has been credited to the person’s securities account.

Official commentary to the U.S. U.C.C. antecedents to this system state:

A security entitlement is not a claim to a specific identifiable thing; it is a package of rights and interests that a person has against the person’s securities intermediary and the property held by the intermediary. The idea that discrete objects might be traced through the hands of different persons has no place in the Revised Article 8 rules for the indirect holding system.

It is suggested that the ITA does not accommodate the security entitlement system, by failing to address germane questions, e.g.:

(1) Do dividends maintain their characterization as they work their way through the system to the end entitlement holder?

(2) Are shares in an American corporation “specified foreign property”?

(3) Is there a taxable disposition if a person delivers a share certificate to his or her broker in exchange for a security entitlement for the same number of shares?

Neal Armstrong. Summary of David H. Sohmer, “The Securities Transfer Act and the Income Tax Act: Who Owns Publicly Traded Securities?” Tax Topics (Wolters Kluwer), No. 2556, 2 March 2021, p. 1 under General Concepts – Ownership.