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: Could an exchangeable share (excluded under 206(1)(f)(i)) be a foreign property under 206(1)(d.1) of the definition of foreign property - clarification of position in file 2000-000388?
Position: Question of fact.
Reasons: The determination of whether the shares of a Canadian corporation derive their value from foreign property can only be determined after a review of all of the facts.
XXXXXXXXXX 2000-001410
M. P. Sarazin
Attention: XXXXXXXXXX
March 16, 2000
Dear Sirs:
Re: Exchangeable Shares as Foreign Property
This is in response to your telephone request of March 9, 2000, wherein you requested clarification of the comments provided in our letter dated March 8, 2000 (file #2000-000388) regarding the definition of "foreign property" in subsection 206(1) of the Income Tax Act.
You have asked us to confirm that exchangeable shares which provide the holder with specific rights including the ability to exchange shares of a Canadian corporation for shares of a foreign corporation and are excluded from the foreign property definition by virtue of paragraph 206(1)(f) would not constitute foreign property under paragraph 206(1)(d.1) because of the exchangeability feature.
The determination of whether a share derives its value, directly or indirectly, primarily from foreign property for purposes of paragraph 206(1)(d.1) of the definition of foreign property is a question of fact. In determining whether shares of a Canadian corporation, some of which are exchangeable into shares of a foreign corporation, would constitute foreign property under paragraph 206(1)(d.1) of the definition of foreign property, we would have to determine whether it is reasonable to conclude that all the shares of the Canadian corporation derive their value, directly or indirectly, primarily from foreign property. Where it is determined that the shares of the Canadian corporation do not derive their value, directly or indirectly, primarily from foreign property, the exchangeable shares which are excluded by virtue of subparagraph 206(1)(f)(i) of the definition of "foreign property" will not constitute foreign property even though the exchangeable share rights entitle the holder to certain voting rights in the foreign corporation, dividends which are based on dividends and market price changes of the foreign corporation's shares and no general voting rights in respect of the Canadian corporation.
We trust the above comments will be of assistance to you.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy & Legislation Branch
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