14 June 2001 External T.I. 2001-0086535 - ACB of shares

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: Determination of average cost of XXXXXXXXXX shares acquired over a long period of time

Position: ACB of shares to be determined on the basis of the costs incurred by an individual to acquire the shares, there is no provision in the Act for establishing an arbitrary amount.

Reasons: Acb has meaning conferred by the Act and generally would be cost of property plus sec 53 adjustments

XXXXXXXXXX 2001-008653

June 14, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter of May 15, 2001 wherein you requested our position with respect to the "cost amount"¹ of XXXXXXXXXX common shares acquired by you and other members of a small group of retired XXXXXXXXXX employees. The shares have been acquired over an extended period of time and under different circumstances with respect to each holder. It is your suggestion that the average cost base of such shares to their respective holder should be based on the average trading price of XXXXXXXXXX common shares over the five day period before the spin-off of XXXXXXXXXX .²

The term "cost amount" is defined in subsection 248(1) and for property that was capital property (other than depreciable property) of the taxpayer, means its adjusted cost base, as defined in section 54, to the taxpayer at that time. Generally speaking, the adjusted cost base to a taxpayer of a property will be the cost of that property adjusted by adding to the cost the amounts described in subsection 53(1) and by deducting from the cost the amounts described in subsection 53(2).

There is no provision in the Act which would allow the adjusted cost base of the XXXXXXXXXX common shares to be determined to be the fair market value of such shares at the time of the distribution of the XXXXXXXXXX shares in the manner that you have suggested. We appreciate that the XXXXXXXXXX common shares have been acquired by you and your colleagues over a long period of time and the determination of the adjusted cost base of such shares may be difficult. However, the adjusted cost base of such shares to a particular shareholder must be determined individually and it would be the responsibility of that shareholder in computing his income for a taxation year to make such a determination to the best of his ability.

In order to assist you in determining the average cost of your XXXXXXXXXX common shares which were acquired prior to December 31, 1971, we have enclosed copies of our Interpretation-Bulletins No. 78 and No. 84. XXXXXXXXXX.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch

ENDNOTES

¹ Within the meaning of subsection 248(1). All references in this letter to a statute are to the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1 as amended to the date hereof.

² In our conversations of June 8 and 11, 2001 (XXXXXXXXXX/Teixeira), we discussed the information provided to the shareholders of XXXXXXXXXX and the requirement for such shareholders to report any gain or loss realized on the exchange of XXXXXXXXXX shares for XXXXXXXXXX shares in the reorganization of these corporations that took place in XXXXXXXXXX and how this was different from the XXXXXXXXXX arrangement.

- 3 -