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:
Whether certain amendments to the articles of incorporation of a CCPC would cause the corporation to lose its status as a CCPC.
Whether these amendments would result in a disposition of the existing issued shares.
Position:
No.
It should not.
Reasons: Application of the relevant provisions of the Act.
XXXXXXXXXX 2000-003869
F. Framcis
January 7, 2002
Dear XXXXXXXXXX:
This is in reply to your letter of July 18, 2000, wherein you requested a technical interpretation concerning whether a corporation ("Corp") will retain its status as a Canadian-controlled private corporation ("CCPC") as that term is defined in subsection 125(7) of the Income Tax Act (the "Act").
You advise that Corp is incorporated under the Canada Business Corporations Act (the "CBCA") and that its Articles of Incorporation contain standard clauses regarding the number of shareholders, restrictions on transferability and the ability to offer shares to the public. You refer to these collective restrictions as "private company restrictions". You further advise that Corp is considered to be a CCPC at this time. Since Corp may consider selling its shares on a prescribed stock exchange in the future, it is considering amending its Articles of Incorporation to remove the private company restrictions. In particular, Corp wants to provide for the ability to have more than 50 shareholders and to remove some of the restrictions on transferability of shares.
You enquire as to whether the filing of the Articles of Amendments to remove the private company restrictions would result in Corp losing its status as a CCPC. You further enquire as to whether the filing of the Articles of Amendment would sufficiently alter the rights and attributes of the underlying shares such that they may be considered to have been disposed of and reacquired at fair market value.
In our view, the removal of the private company restrictions would not, in and of itself, result in Corp losing its status as a CCPC. We further note that, as stated in paragraph 10 of our Interpretation Bulletin IT-448, where a corporation has only one class of shares issued, any change in the rights attaching to a class does not alter their relative interest in the corporation. In this situation, it is unclear as to whether Corp has more that one class of shares issued and outstanding. However, unless the removal of the private company restrictions results in a change in a particular shareholder's interest in Corp relative to the other shareholders, the filing of the Article of Amendment should not result in a disposition at that time.
As noted in Information Circular 70-6R4 issued on January 29, 2001, the above comments are not binding on the Canada Customs and Revenue Agency.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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