6 May 2003 External T.I. 2003-0013545 - Grandfathering Rules for Subsection 112(3.2)

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: Impact of a Stock Split or Consolidation on the status of grandfathered shares for the purpose of subsection 112(3.2).

Position: Status not affected if all conditions in IT-65 are met.

Reasons: There is no disposition or acquisition of any share.

XXXXXXXXXX 2003-001354
Michael Cooke
May 6, 2003

Dear XXXXXXXXXX:

Re: Grandfathering Rules For Subsection (3.2)

This is in response to your letter dated April 2, 2003, wherein you requested our opinion on the application of the above noted stop-loss provision of the Income Tax Act (the "Act").

In your letter you describe a situation in which the shares of the capital stock of a corporation are "grandfathered" from the stop-loss rule in subsection 112(3.2) because the particular shares met all the conditions contained in paragraph 131(11)(b) of S.C. 1998, c. 19 on April 26, 1995. You indicate in your letter that the particular shares, along with shares of the same class owned by the other shareholders of the corporation will be subject to a stock split which will satisfy the conditions described in Interpretation Bulletin IT-65 Stock Splits and Consolidations ("IT-65"). As a result of the stock split, none of the shareholders of the particular corporation will be considered to have disposed of their shares for the purposes of the Act.

Your question is whether the particular shares of the corporation would continue to be "grandfathered" for the purposes of the stop-loss rule in subsection 112(3.2) after the stock split.

Confirmation of the income tax consequences of proposed transactions involving specific taxpayers will only be provided in response to a request for an advance income tax ruling. To make such a request the advance income tax ruling must be submitted in accordance with the guidelines set out in Information Circular 70-6R5 (IC-70-6R5) dated May 17, 2002. However, if the situation relates to a completed transaction a request for the Canada Customs and Revenue Agency's ("CCRA") views must be made to your local Tax Services Office. If you decide to make any such request, all the relevant facts and other pertinent information would need to be provided to the CCRA.

Notwithstanding the above, where as a result of a stock split or stock consolidation transaction described in IT-65, there is no disposition or acquisition of any shares of the capital stock of the corporation, it is our view that the stock split or stock consolidation will not, in and by itself, affect the status of a particular shareholder's shares as being "grandfathered" for the purpose of the stop-loss rule in subsection 112(3.2).

Our comments are provided in accordance with the practice described in paragraph 22 of IC-70-6R5.

Yours truly,

David Palamar
Section Manager
for Division Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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