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.17 Change of Common Shares into Preferred Shares - Capital Gains Exemption
Opco, a taxable Canadian corporation, has two shareholders, each of whom is an individual resident in Canada who holds 50% of the common shares as capital property. Opco files articles of amendment to authorize a class of redeemable, retractable preferred shares and to change the issued outstanding common shares into preferred shares with a fair market value equal to the fair market value of the common shares so changed. Immediately following the filing of articles of amendment, each shareholder subscribes for new common shares of Opco for a nominal amount. The intention of the shareholders is to trigger capital gains on the disposition of the common shares which would be eligible for the capital gains exemption. Would the Department confirm that it is possible for each shareholder to file a joint election with Opco pursuant to subsection 85(1) to trigger a gain with respect to the change of common shares into preferred shares, and that subsections 86(1) and (2) are not applicable by virtue of subsection 86(3)?
Department's Position
It is our view that changing the common shares into preferred shares results in a disposition of the common shares to Opco for the purposes of subsection 85(1) so that the subsection 85(1) election can be made. Provided that an election pursuant to subsection 85(1) is made with respect to the disposition of the common shares, subsection 86(1) and (2) would not apply to the disposition of these common shares, pursuant to subsection 86(3).
IT 448, paragraph 14, Q.23 1991 Round table and opinions given by Rulings (85 rollover of shares back to the issuing corporation results in a disposition of those shares, provided that consideration received in the form of other shares have different rights.
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