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.
REVENUE CANADA ROUND TABLECTF CONFERENCE NOVEMBER 1992
Question # 48
Section Ref.: CONVERSION OF PREFERENCE SHARES INTO COMMON SHARES
Assume a shareholder holds convertible preference shares with a paid-up capital for corporate purposes of $2,000,000 and a paid-up capital for tax purposes of $1. The preference shares are converted into common shares with a paid-up capital for corporate purposes of $2,000,000. Will the Department apply subsection 84(1) to deem a dividend to have been paid notwithstanding that:
(a) there has been no disposition or acquisition of shares by virtue of section 51 of the Act, and
(b) there has been no increase in corporate paid-up capital?
Department's Position
Subsection 84(1) deems a dividend to have been paid where a corporation has increased the paid-up capital in respect of the shares of any particular class of its capital stock otherwise than by a transaction by which the paid-up capital in respect of the shares of all other classes of its capital stock has been reduced by an amount not less than the amount of the increase in the paid-up capital. Since the decrease in the paid-up capital in respect of the preference shares is $1, an amount that is less than the increase in the paid-up capital in respect of the common shares of $2,000,000, subsection 84(1) would apply in our view. OR ALTERNATIVELY Paragraph 84(1)(c) of the Act provides, inter alia, that a dividend shall be deemed to have been paid where a corporation has increased the paid-up capital in respect of the shares of any particular class of its capital stock, otherwise than by:
"a transaction by which the paid-up capital in respect of the shares of all other classes of its capital stock has been reduced by an amount not less than the amount of the increase in the paid- up capital in respect of the shares of the particular class".
Since the paid-up capital of one class is decreased by an amount ($1) that is less than the increase ($2,000,000) in the paid-up capital of another class, there would be a deemed dividend by virtue of paragraph 84(1)(c) of the Act.
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