Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: confirmed position in Decision summary 55-066 still valid
Position:
Reasons:
XXXXXXXXXX 1999-000929
D. Yuen
November 16, 2001
Dear XXXXXXXXXX:
Re: Sections 40 and 55 of the Income Tax Act1
We are writing in response to your letter of February 22, 1999 wherein you requested our comments regarding the interaction of section 55 and a capital gains reserve pursuant to subparagraph 40(1)(a)(iii).
You have reviewed Revenue Canada decision summary 55-066 dated November 29, 1985 which was concerned with whether a shareholder can claim a reserve under subparagraph 40(1)(a)(iii) when its shares are redeemed in exchange for a promissory note payable in the future and, pursuant to the application of subsection 55(2) to the resulting subsection 84(3) deemed dividend, the shareholder is deemed to have a capital gain on the redemption. Decision summary 55-066 indicated that if the promissory note is a conditional payment then a reserve is permitted and if the promissory note is an absolute payment then a reserve is not permitted. It is a question of fact whether the promissory note is considered a conditional payment or an absolute payment.
You have asked whether the position stated in decision summary 55-066 still represents the Canada Customs and Revenue Agency's current interpretation of the situation.
The position stated in decision summary 55-066 still represents our view.
This comment is provided in accordance with the guidelines set out in paragraph 22 of Information Circular IC 70-6R4 dated January 29, 2001 issued by the Canada Customs and Revenue Agency (the "CCRA") and is not considered binding on the CCRA.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
ENDNOTES
1 All statutory references contained in this letter are to the Income Tax Act, R.S.C. 1985 (5th Supp.), c. 1, as amended hereof, except as otherwise indicated.
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