11 April 1991 Ministerial Correspondence 910774 F - Appropriate Categorization of Guaranteed Investment Certificates for Purposes of a Butterfly Reorganization

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.

Dear sirs:

This is in response to your letter of March 12, 1991 in which you requested our views on the appropriate categorization of guaranteed investment certificates (GIC's) for purposes of a butterfly reorganization pursuant to subsection 55(3)(b) of the Income Tax Act (the Act) You described the facts as follows:

1.     The GlC's may not be cashed in prior to their maturity date without penalty;

2.     The GIC's are capital property held by a holding company incorporated for the purpose of holding investments and earning income from property;

3.     The GIC's held by the holding company have various maturity dates ranging from six months to two years from the particular time.

At the 1988 Canadian Tax Foundation Conference, the Department stated in a paper presented by Mr. R.J.L. Read, that for purposes of a butterfly reorganization cash or near cash property consists of a corporation's current assets and similar assets including short-term deposits and marketable securities (other than those held as portfolio investments).

Although the categorization of GIC's will depend on the facts of a particular situation, in the above example we would expect that they would be cash on near cash property for purposes of a butterfly reorganization, as they are current assets which are capable of reasonable prompt liquidation.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch