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.
Principal Issues: How should the XXXXXXXXXX settlement consisting of a settlement cheque and shares of new XXXXXXXXXX stock be reported?
Position: The value of the settlement which is the cash amount plus the current fair market value of any new shares will be treated as a capital gain.
Reasons: The taxpayer previously sold all of his XXXXXXXXXX shares when the settlement payment was received so he is considered to have received additional proceeds of disposition.
September 30, 2008
Dear XXXXXXXXXX :
Thank you for your email received on May 15, 2008, concerning email addresses for the Canada Revenue Agency (CRA) and about a recent XXXXXXXXXX settlement.
The CRA is responsible, under the Income Tax Act and the Excise Tax Act, for protecting the information it holds from unauthorized use and disclosure. It is committed to ensuring that the electronic services it offers meet the strict privacy, confidentiality, and security standards that the legislation requires and that Canadians expect. Consequently, although email is a common and widely used means of communication today, it is unsecured. Email can be intercepted and its properties and contents may be changed. For these reasons, the CRA does not offer email as a means of communication.
The CRA’s Web site gives Canadians direct access to information about the programs and services offered by the Government of Canada. Many forms and publications relating to tax issues are available in both official languages to assist Canadians in meeting their obligations and receiving their benefits.
I assure you that the CRA welcomes taxpayer feedback on the services it provides. It is valuable to the CRA in developing the diverse tools necessary to provide the highest level of service possible. As well, such feedback gives the CRA the opportunity to improve or review the tools currently in place to ensure it provides better service.
In your email, you indicate that you previously sold your XXXXXXXXXX shares, claimed a capital loss, and now have received a settlement cheque and new XXXXXXXXXX stock. Since you no longer owned any of your XXXXXXXXXX shares when you received the settlement payment, you are considered to have received additional proceeds of disposition. As you state that you held your XXXXXXXXXX shares on capital account, the value of the settlement payment, which is the cash amount plus the current fair market value of any new shares, will be treated as a capital gain and you must include a portion, currently 50%, of this amount in your income for the year as a taxable capital gain. However, a taxable capital gain can be reduced or eliminated by any unclaimed allowable capital losses that you may have. Also, the adjusted cost base of any share received in the settlement payment will be equal to its fair market value at the time that you received it. I appreciate your suggestion about announcing these instructions publicly, and I am pleased to advise you that such material is being drafted and will be on the CRA Web site soon.
I trust that the above information clarifies the CRA’s position on these matters.
The Honourable Gordon O’Connor, P.C., M.P.
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