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.
June 14, 1991
Dear Sirs:
Re: Subsection 85(1) of the Income Tax Act (Canada) (the "Act")
We are writing in response to your letter dated April 12, 1991 wherein you requested a technical interpretation regarding the application of the provisions of subsection 85(1) of the Act to the following situation.
24(1)
In your letter you have outlined what appears to be an actual fact situation related either to a past transaction or to an actual proposed transaction. If the situation described relates to an actual transaction which has already been implemented, the review of such transactions falls within the responsibility of District Taxation Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. If, however, the situation described relates to an actual proposed transaction, it should be the subject of an advance income tax ruling request. However, we can provide you with the following general comments which we hope will be of assistance.
For discussion purposes, we have assumed that the warrants represent rights to purchase a specified amount of capital stock of the Issuer at a specified time(s) for a specified price. These warrants would be considered property, as that term is defined in subsection 248(1) of the Act, for purposes of subsection 85(1) of the Act.
It is our general view that the provisions of subsection 85(1) of the Act could apply where shares of one class of a corporation are transferred to the corporation for consideration consisting of shares of another class of the corporation. Our general view would not be affected by the fact that the consideration received by the transferring shareholder includes warrants issued by the corporation. It is also our view that the warrants issued by the corporation would not constitute "... a right to receive ... shares" of the capital stock of the corporation for purposes of subsection 85(1) of the Act. Consequently, the fair market value of the warrants would constitute non-share consideration received by the transferor in the course of disposing of eligible property to a taxable Canadian corporation.
The foregoing comments represent our general views with respect to the subject matter of your letter. The facts of a particular situation may lead to a different conclusion. In accordance with paragraph 21 of Information Circular 70-6R2, the comments expressed herein do not constitute an advance income tax ruling and consequently are not binding on the Department.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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