CRA indicates that s. 51 could not apply on the conversion of a share corp to non-share corp

A corporation (the DLCC), which had been operating a club for the purposes of pleasure and recreation of the members and of the community was, as a result of the repeal of its governing Act, continued under a Corporations Act as a non-share capital corporation, so that the DLCC shares were exchanged for membership interests. CRA indicated that:

• such conversion would not cause a share disposition if no shares were cancelled and the rights of the shareholders were not substantively altered; and
• if there otherwise was a disposition, s. 51 would not apply, given CRA’s position that a person who has a membership interest in a non-share capital corporation does not hold a “share,” so that, here, there could be no share-for-share exchange.

The first point, which proffers the possibility that the conversion could occur without the cancellation of shares, may be at odds with the second point that, after the conversion, the shares would be gone.

Neal Armstrong. Summaries of 1 May 2023 External T.I. 2021-0921101E5 under s. 149(1)(l), s. 149(12), s. 248(1) – disposition and s. 51.