1.Whether high-low preferred shares issued in the course of an estate freeze would be treated as capital stock or as debt for Part I.3 purposes in light of section 3860 of the CICA handbook? If they are treated as debt, which paragraph of the definition of "capital" in subsection 181.1(3) would they fall into?
2.If the preferred shares are treated as capital stock, would the amount added to capital under paragraph 181.1(3)(a) be the stated capital of the shares or the redemption amount as shown on the balance sheet?
3.If the corporation adopts an alternate presentation that shows the difference between the redemption value and the stated capital as a separate, negative component of shareholders' deficiency described as "Provision for redemption of preferred shares," would the provision be deductible in calculating the corporation's capital? If so, would the net of the provision and retained earnings be deducted as a deficit under paragraph 181.2(3)(i)?
4.Whether handbook section 3860 would affect the determination of capital for Part VI purposes?
5.Whether the preferred shares would be treated as debt or shares for the purposes of subsection 18(4).
6.If a deficit results from the application of handbook section 3860, can the negative adjustment be excluded in determining the corporation's retained earnings for the purposes of subsection 18(4) or, if the corporation adopts the alternate presentation, must the provision for redemption of preferred shares be deducted?
7.If dividends on preferred shares are deducted as interest expense or financing costs for income statement purposes in accordance with handbook section 3860, are there any circumstances under which that amount would not be added back in reconciling book income with income or loss for tax purposes?
2.Amount reflected on the balance sheet in accordance with GAAP which appears to be the redemption amount.
4.Generally same implications as for Part I.3.
6.The negative adjustment is included in computing retained earnings to the extent that the amount of retained earnings is reduced to nil. If the alternate presentation is adopted, the provision for redemption of preferred shares is not deducted in computing retained earnings.