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:
Whether a PUC shift to non-resident shareholders would be subject to GAAR
Position:
No, provided the shift reflects the original capital contribution made by the non-resident.
Reasons:
Does not appear to be a misuse or abuse of the Act.
2001-007959
XXXXXXXXXX Karen Power, C.A.
(613) 957-8953
May 10, 2001
Dear XXXXXXXXXX:
Re: Paid-up capital (“PUC”) shift involving non-resident shareholders
We are writing in reply to your letter of April 10, 2001 requesting our opinion on whether subsection 245(2) of the Income Tax Act (the “Act”) would apply to a situation described in a previous interpretation letter dated May 8, 1996 (our reference E9613115) where the shareholder in question is a non-resident of Canada who deals at arm’s-length with the corporation.
The application of subsection 245(2) of the Act to any particular situation can only be determined following a review of all of the relevant facts pertaining to that situation. However, it is our general view that subsection 245(2) would not normally apply where a reorganization of capital is undertaken to shift PUC to a class of shares (including a class of shares held by non-resident shareholders) provided that the amount of PUC attributable to any particular class of shares does not exceed the amount that would have arisen at the time that the shares were originally issued from treasury on the assumption that the shares had been issued as a separate class of shares.
We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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