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: Whether a flow-through share qualifies as a "Canadian security" for the purposes of the election under 39(4).
Position: No.
Reasons: Does not meet the definition of a Canadian security under subsection 39(6) because a flow-through share is a prescribed share for the purposes of 39(6) definition as per paragraph 6200(d) of the Regulations.
XXXXXXXXXX
2012-046555
Andrea Boyle, CGA
November 20, 2012
Dear XXXXXXXXXX:
Re: Flow-through shares and the definition of "Canadian Securities"
We are writing in reply to your email received October 9, 2012. You asked us whether a flow-through share issued by a public corporation resident in Canada qualifies as a "Canadian security" for the purposes of the election on the disposal of Canadian securities under subsection 39(4) of the Income Tax Act.
You referred to a previously-issued CRA interpretation (document 2001-0098305) in which we said that "
an election pursuant to subsection 39(4) of the Act, is not available for a flow-through share because it is a prescribed security that is excluded from the definition of a Canadian security in subsection 39(6) of the Act." You have asked us to clarify specifically why a flow-through share is considered to be a prescribed security.
A Canadian security is defined under subsection 39(6) of the Act. Under this definition, a Canadian security includes a security, other than a prescribed security, that is a share of the capital stock of a corporation resident in Canada. The definition of a prescribed security for the purposes of the subsection 39(6) is found under section 6200 of the Income Tax Regulations.
Under paragraph 6200(d) of the Regulations "a share acquired by that taxpayer under circumstances referred to in section 66.3 of the Act" is a prescribed security for the purposes of subsection 39(6). Since subsection 66.3(3) of the Act refers to flow-through shares within the meaning assigned by subsection 66(15), a flow-through share is considered to be a prescribed share for the purposes of the definition of a Canadian security under subsection 39(6).
A flow-through share issued by a public corporation resident in Canada would therefore not qualify for the subsection 39(4) election.
We trust that these comments will be of assistance.
Yours truly,
Doug Watson
for Director
Corporate Financing Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2012
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2012
Email this Content