24 February 1989 Income Tax Severed Letter 5-6947 - [Article XIII, Paragraph 9 of the Canada-U.S. Income Tax Convention, 1980 (the "Convention")]

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.

Revenue Canada Taxation Head Office

XXXX

T.B. Kuss (613) 957-2128

Attention: XXXX

FEB 24 1989

Dear Sirs:

Re: Article XIII, Paragraph 9 of the Canada-U.S. Income Tax Convention, 1980 (the "Convention")

This is in response to your letter dated October 24, 1988 in which you requested a technical interpretation of the above- referenced provisions of the Convention.

Your question focuses on whether the exemption for gains accrued to December 31, 1984 may be allocated to specific classes of shares of a corporation and how one deals with this matter on a reorganization of the capital of a corporation.

We provide the following general comments.

In our view the appropriate method of allocation of the exemption would be on the basis of the relative fair market value of the various classes of shares received on the reorganization of capital. Such a method is more consistent with the scheme of the Act (for example paragraph 86(1)(b), paragraph 87(4)(b) et al.). It is also consistent with the Department's position regarding the amount of "safe income" attributable to a share after such a reorganization.

The fact that your desired result can be accomplished in a somewhat more complicated series of transactions is in our view not a valid reason for accepting the interpretation you are espousing. Additionally, accepting such an interpretation could serve to "tie the Department's hands" in other situations where either the result of that interpretation would be clearly inappropriate, or the result could not be achieved by other means.

We hope our comments are of assistance.

Yours truly,

for Director Reorganizations and Non-Resident Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch