29 September 1982 Income Tax Severed Letter 7-2074 - [820929]

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.

DATE: September 29, 1982

TO-A VANCOUVER DISTRICT OFFICE

FROM-DE HEAD OFFICE
        Corporate Rulings Directorate 
P. Clemens 
        593-6201

ATTENTION Mr. Cruz
          Basic Files Section 142-51

          XXXX

This is in reply to your memorandum dated August 16, 1982, requesting our opinion on the application of subsections 39(2), 51(1) and section 80 to the conversion of securities in U.S. funds to shares of a Canadian company, as noted below.

Facts, as stated

1.

2.

3.                              XXXX

4.

5.                              XXXX

District Office Position

(A) Paragraph 51(1)(a) of the Act deems the conversion "not to have been a disposition of property". It Is your opinion. therefore, that

                                 XXXX

(B) You have also considered the application of section 30 to this situation. You came to the conclusion that section 80 would not apply.

(C) You have ignored the tax ramifications of any fractional interest in such shares because of insignificant amounts.

Rulings Division Opinion

(A) We are unable to confirm your opinion with respect to the applications of subsections 39(2) and 51(1).

Although paragraph 51(1)(a) deems that this conversion is not a disposition of property, this has application only to the debenture holder. since the repayment of a debt is not a disposition of property by XXXX Subparagraph 54(c)(vii) excludes from the definition of disposition of property" the issuance of XXXX

Subsection 39(2) was designed to include gains and allow losses in situations such as the repayment of a debt, where a disposition of property could not be considered to have taken place. This is one reason that such gains or losses are "deemed" to have occurred. The question then becomes whether or not.

                                XXXXXXXX 
There is also the question of treatment of the debenture holders who have 
"made a gain", even though there has been deemed to have been no disposition.
While the U.S. debenture holders may be exempt on this gain by 
virtue of Article 8 of the Canada-U.S. Income Tax Convention. Canadian 
residents could be deemed to have à gain.

                                21(1)(a)

We understand that amendments to the Act to deny such gains and losses are currently being considered.

(B)

                                 XXXX
                                   &
(C)                            21(1)(a) & (b) 

Chief Mines, Oils & Forest Industries Section Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch

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