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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: A financial institution will have a significant interest in a corporation for the purposes of the mark-to-market rules if it holds shares having at least 10% of the votes and 10% of the fair market value of all the issued shares in the corporation. We are asked whether it would be necessary for the financial institution to satisfy a votes or value test in respect of any particular class of shares of a corporation in order to have a significant interest.
Position: There is no requirement that a financial institution hold 10% or more of the votes or value of any given class of shares of a corporation in order to have a significant interest in the corporation.
Reasons: The legislation.
February 14, 2000
TORONTO NORTH TSO HEADQUARTERS
Income Tax Rulings
Attention: John Tepelenas Directorate
Robin Maley
(613) 957-9226
2000-000600
Mark to Market Shares - Opinion on significant influence, paragraph 142.2(2)(b)
This is in response to your memo dated February 3, 2000 in which you posed the following question:
A financial institution owns 2 classes of shares of a corporation.
a) 30% of the common (voting) shares of the corporation. The common shares have nominal value, ie: they do not represent 10% of the fair market value and
b) 100% of the preferred, non-voting shares of the corporation. These preferred shares represent 99.99% of the fair market value.
When considered separately, neither of the classes of shares represents significant influence ie: the financial institution does not have 10% of the votes and 10% of the fair market value of any one class of shares. However, when considered in total, the financial institution holds 30% of the voting and 99.99% of the fair market value.
In determining significant influence, do we consider the classes of shares separately or in total? More specifically, does the above financial institution have significant influence?
Our Views
It is our opinion that the financial institution described has a significant interest in the corporation described. Under paragraph 142.2(2)(b), a financial institution has a significant interest in a corporation at any time if it holds, at that time
(i) shares of the corporation that give the taxpayer 10% or more of the votes that could be cast under all circumstances at an annual meeting of shareholders of the corporation, and
(ii) shares of the corporation having a fair market value of 10% or more of the fair market value of all the issued shares of the corporation.
There is no requirement that the financial institution hold 10% or more of the votes or value of any given class of shares in order to satisfy these requirements.
If you should have any questions, please contact Robin Maley (613-957-9226) of the Financial Industries Division directly.
F. Lee Workman
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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