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: When determining whether a shareholder is a designated shareholder: 1) Can you consider the dollar value of the shares in relation to total dollar value of all shares in the class in determining whether the 10% rule applies? 2) Will the Agency allow you to combine different classes of shares in determining whether the 10% rule applies?
Position: 1) No. 2) No.
Reasons: 1) The provision clearly applies to the number of shares and not the relative value of shares. 2) The provision applies to each class of shares so they have to be looked at separately.
XXXXXXXXXX 2000-001664
M. P. Sarazin
Attention: XXXXXXXXXX
June 1, 2000
Dear Sirs:
Re: Designated Shareholder Definition in Subsection 4901(2)
This is in response to your facsimile of March 24, 2000, wherein you ask for our interpretation of the expression "not less than 10% of the issued shares of any class of the capital stock of the corporation" in the definition of "designated shareholder" in subsection 4901(2) of the Income Tax Regulations (the "Regulations").
You would like to know whether the Canada Customs and Revenue Agency (the "Agency") will look at the dollar value of shares instead of the number of shares as the determining factor when looking at the 10% test. You would also like to know whether the Agency combines different classes of shares in determining whether a shareholder is a designated shareholder.
In our view, the expression "not less than 10% of the issued shares of any class of the capital stock of the corporation" used in the definition of designated shareholder in subsection 4901(2) of the Income Tax Regulations can only refer to the number of shares. Our position is based on the fact that there is no reference to cost or fair market value in the expression.
The expression refers to the issued shares of any class of the capital stock of the corporation. Therefore, in determining whether a shareholder is a designated shareholder, you would look at the number of shares of each class of shares owned by the shareholder or any related person in calculating the percentage ownership of each class of shares of the particular corporation or of any related corporation. The Agency does not combine different classes of shares in determining whether a shareholder is a designated shareholder. This would be the case even where the different classes of shares have the same rights attached to them.
If an individual or a related person owns 10% or more of the issued shares of any class of shares of the "eligible corporation" (as defined in subsection 5100(1) of the Regulations) or of a corporation related to the eligible corporation, shares of the eligible corporation will not be a qualified investment for the individual's registered retirement savings plan or registered retirement income fund unless the individual is an "exempt person" as defined in subparagraph (a)(ii) of the definition of "designated shareholder" contained in subsection 4101(2) of the Regulations.
We trust the above comments will be helpful.
Yours truly,
Patricia Spice
for Director
Financial Industries Division
Income Tax Rulings Directorate
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