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.
Canadian Tax Foundation November 1992 Conference
Q.52 Meaning of "Contribution of Capital"
1) What is the meaning of the expression "contribution of capital" in paragraph 53(1)(c) and how does it differ from "contributed surplus" in paragraphs 84(1)(c.2) and (c.3)? Does a "contribution of capital" in paragraph 53(1)(c) include "contributed surplus"?
2) Does the cost for tax purposes of par value shares acquired at a price in excess of par value include "contributed surplus" under generally accepted accounting principles, or does the shareholder get recognition for the amount of this excess only by virtue of and in accordance with the rules under paragraph 53(1)(c)?
Department's Position
1) The term "contribution of capital" is not defined in the Act and the Department has not formulated a position with respect to the meaning of the term except in response to particular fact situations. Although an exhaustive definition has not been developed administratively, it is clear that the term is not synonymous with "contributed surplus". To illustrate, for example, a loan or transfer of property to a corporation may qualify as a contribution of capital (albeit one that is excluded from the application of paragraph 53(1)(c)) but will not necessarily result in any increase in the contributed surplus of the corporation.
Although the term "contribution of capital" may have a broad meaning, certain conditions must be satisfied in order for a contribution of capital to result in an increase in the adjusted cost base of the contributor's shares of the corporation. The contribution must not be one of the excluded types of contributions described in paragraph 53(1)(c) and must result in an increase in the fair market value of the contributor's shares of the corporation.
2) Subject to the application of specific deeming provisions in the Act (such as subsections 69(1) and 85(1)), the shareholder's cost of such shares would be determined simply with reference to the purchase price and other costs of acquisition of the shares. Thus the excess of the purchase price over the par value of the shares would ordinarily be reflected in the adjusted cost base of the shares without reference to paragraph 53(1)(c).
Reference - same questions raised by local study group in the Vancouver District Office, responded to by J. Harms - 900410.
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