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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Subject: AVERAGE ANNUAL RATE OF RETURN Section(s): 110.6(9)]
ROUND TABLE - CGA - JANUARY 10, 1992
Officer: Charles Theriault
File: 7-912221
QUESTION #16
Subsection 110.8(9) of the Act explains the meaning of "average annual rate of return" by referring to the return that a knowledgeable investor would expect to receive on his/her investment. What is the Department's position when shares purchased for a minimal amount are transferred to a holding company pursuant to the provisions of subsection 85(1) when their market value is high? Is the dividend to be calculated on the value of the shares when they are transferred or the consideration received when they were issued?
ANSWER
The annual rate of return by way of dividends that a knowledgeable and prudent investor who purchased the shares would expect to receive on the day he/she acquired them is a question of fact. The expectations of a knowledgeable and prudent investor must be determined by assuming that there will be no delay or postponement in the payment of dividends and no failure to pay dividends, that the dividends will be paid each year at a predetermined rate, either fixed or variable and that the share will be eventually sold for an amount equal to that received by the corporation when the share was issued. We are of the opinion that the return on transferred shares is also a factor to be taken into account in determining the annual rate of return and that the average annual return is usually calculated on the basis of the amount invested by a knowledgeable and prudent investor who purchased the share on the day it was issued.
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