Following Agnico-Eagle, CRA is reviewing whether the conversion of conventional convertible debentures gives rise to s. 214(7) interest

At the May 2009 IFA Roundtable, CRA stated that, where there is a conversion of a traditional convertible debenture by its original holder for common shares of the capital stock of the issuer, there would generally be no excess under s. 214(7). However, the Agnico-Eagle decision has forced a CRA review of its position, which has not yet been completed.

However, CRA continues to consider that the deemed payment of interest on convertible debentures under s. 214(7) arising on their transfer by a non-resident to an arm’s length resident does not generally constitute participating debt interest.

Neal Armstrong. Summary of 25 November 2021 CTF Roundtable, Q.16 under s. 212(3) - participating debt interest.