27 April 1993 Income Tax Severed Letter 9300845 - Contributed Surplus

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.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

                                                    5-930084
                                                    D. Yuen
XXXXXXXXXX                                          (613) 957-8967

Attention: XXXXXXXXXX

April 27, 1993

Dear Sirs:

Re: Contributed Surplus

We are writing in response to your letter of January 6, 1993 wherein you requested our views on the application of subparagraph 84(1)(c.3)(ii) of the Income Tax Act (Canada) (the "Act") in a situation where cash is contributed to a corporation by a shareholder for no consideration after March 31, 1977.

It is your view that a contribution of cash to a corporation is an acquisition of property by the corporation and that a subsequent conversion of the contributed surplus that arose on the contribution into paid-up capital will not result in the deemed payment of a dividend by the corporation pursuant to subsection 84(1) of the Act by virtue of subparagraph 84(1)(c.3)(ii) of the Act.

Comments

1. It is our view that, in the situation described above, no dividend will be deemed to have been paid pursuant to subsection 84(1) of the Act by virtue of subparagraph 84(1)(c.3)(ii) of the Act.

2. The contribution of cash will not result in an addition to the adjusted cost base of the shares of the corporation held by the contributing shareholder unless all the requirements of paragraph 53(1)(c) of the Act are met.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada.

Yours truly,

for Director Reorganizations and Foreign Division Rulings Directorate Legislative and Intergovernmental Affairs Branch