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.
911683
D.A. Palamar
24(1) (613) 957-2119
Attention: 19(1)
June 26, 1992
Dear Sirs:
Re: "Term Preferred Shares"
This is in response to your letter of June 18, 1991 wherein you requested our views on whether a particular share of a corporation would be considered to be a "term preferred share" as defined in subsection 248(1) of the Income Tax Act (the "Act"). We apologize for the delay in our response.
You have stated that the particular share in question would have the following attributes:
- (i) it would be a preferred share, redeemable solely at the option of the issuing corporation, which would have an issue price and a redemption price of $25.00 per share;
- (ii) it would carry a 10% cumulative dividend entitlement; and
- (iii) after a period of five years it would be convertible into common shares of the issuing corporation (which are listed on a prescribed stock exchange in Canada for purposes of the Act). The number of common shares to be received on the conversion would be determined by dividing the redemption value of the share (being $25.00 plus any unpaid dividends) by the weighted average trading price of the publicly traded common shares for the 20 day trading period immediately preceding the day notification of the conversion is given.
Subparagraph (a)(iii) of the term preferred share definition provides, inter alia, that a share will be considered to be a term preferred share when the issuing corporation provides "... any form of guarantee, security or similar indemnity or covenant...with respect to the share...." In our view the conversion feature of the share which you have described would constitute a form of guarantee or security since it ensures that an investor's original investment will be recovered.
The foregoing comments represent our general views with respect to the subject matter of your letter and are given in accordance with our policy of providing non-binding opinions as set out in paragraph 21 of Information Circular 70-6R2.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
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, 1992
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, 1992
Email this Content