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.
B.C. Tax Executive Institute Round Table
Author: Steve Tevlin
Date: October 15, 1992
Document Type:Code 7
T236 #: 923039
Question:
A taxable Canadian corporation (the "Issuer") issues, for cash consideration, a bond warrant (the "Option") that grants the investors an option to acquire a debenture with cash flows and terms identical to those of an existing callable debenture. The concept is equivalent to extending the terms of the callable debenture from the call date to the original maturity date. The Option would be exercisable on the call date of the existing debenture. The purpose of issuing the Option is to enable the Issuer to realize value for the future call provision of a high coupon debenture.
- (a) Will the grant of the Option be a disposition of property by the Issuer and will the grant of the Option be considered as an issue of debt to the Option holders?
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
(b) In the event that the Issuer is considered to have received proceeds on the grant of the Option, will the option price received be considered to be: (i)income to the issuer; and
- (ii) an inducement received by the Issuer in the course of earning income?
- (c) Will interest payable by the Issuer of the debenture, that is issued upon exercise of the Option, be deductible in calculating its income?
Department's Position
This appears to be a situation whereby a capital receipt (sale of option) would be converted into an income deduction in the form of an interest payment. As such the Department would consider the application of subsection 245(2) of the Act to this type of arrangement.
Document Disclosed Pursuant to The Access To Information Act Document Divulgué en vertu de la loi sur l'accès à l'information
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