CRA declines to comment on whether a right to a top-up in the event of an IPO is inconsistent with receiving FMV proceeds

There is an exception in s. (f)(ii) of the taxable preferred share definition to accommodate inter alia a clause under which a person agrees to acquire the share for an amount not exceeding the FMV of the share at the time of the acquisition, and a comparable exception in s. (a) of the short-term preferred share definition. CRA was asked various questions including whether, where a clause permits a shareholder to redeem its common shares at FMV, the provision for further compensation in the event that there was a public offering within 12 months at a higher price would cause the exception to not be available.

CRA gave a non-committal response - which is better than a negative response.

Neal Armstrong. Summary of 7 October 2022 APFF Federal Roundtable, Q.2 under s. 248(1) – taxable preferred share – s. (f)(ii).