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.
XXXX
T.B. Kuss (613) 957-211
Attention: XXXX
February 3, 1992
Dear Sirs/Madams:
Re: Regulation 5904(2) Request for Technical Interpretation
This is in reply to your letter dated October 22, 1991 in which you requested a technical interpretation regarding the application of Regulation 5904(2). Specifically, you have asked us to confirm that a return of capital on a class of shares of a foreign affiliate would not be considered a "distribution" for purposes of Regulation 5904(2)(a).
We provide the following general comments.
Regulation 5904 provides for a computation of direct equity percentage, and thereby participating percentage, that attributes to each class of shares of the affiliate a relative weighting based on its actual and potential participation in annual profits (its "distribution entitlement"). For purposes of Regulation 5904 distribution entitlement is defined, in general terms, by reference to distributions actually made during the year and the increase, if any, in the net surplus of the affiliate between the commencement and close of its taxation year.
In our opinion it is intended that the word "distributions" in Regulation 5904(2)(a) means distributions out of the profits or surplus of the affiliate and would not include a return of capital. The context in which "distribution" is used in the rest of Regulation 5904(2) and in Regulation 5904(3) clearly represents a distribution of net surplus. Where the capital has been paid in, the return of such capital would not normally constitute a distribution for purposes of Regulation 5904(2)(a).
As well, from a tax policy perspective, a return of capital would not necessarily, in and of itself, impact on the surplus that may reasonably be distributed on a class of shares and should not affect the computation of the "participating percentage" of a particular share.
We hope our comments are of assistance.
Yours truly,
for Director Reorganizations and Foreign Division Rulings Directorate Legislative and Intergovernmental Affairs Branch
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