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.
Principal Issues:
Where an obligation is convertible into shares and
other debentures and/or property would the provisions
of 212(1)(b)(vii) provide an exemption?
Position TAKEN:
NO. Exemption is only for prescribed security or an
"event of default"
Reasons FOR POSITION TAKEN:
Where borrower in any circumstances can be obliged to
pay cash in response to conversion exercise by lender -
contrary to Q 17, 1991 Cdn Tax Round Table
940573
XXXXXXXXXX C. Tremblay
Attention: XXXXXXXXXX
April 25, 1994
Dear Sirs:
Re: Subparagraph 212(1)(b)(vii) of the Income Tax Act (the "Act")
This is in reply to your letter of March 4, 1994, concerning the applicability of subparagraph 212(1)(b)(vii) of the Act to a corporation resident in Canada who issues debentures to non-residents.
The situation that you described involves a factual situation, and consequently your questions should be directed to your District Taxation Office which has the responsibility of determining the tax consequences of completed transactions and their implications to the specific taxpayers.
However, the Department's position is as stated in response to question 17 of the Revenue Canada Round Table Questions
at the 1991 Canadian Tax Foundation's Annual Conference that subparagraph 212(1)(b)(vii) of the Act would not be
available under an arrangement whereby the borrower could, in any circumstances, be obligated to pay cash in response to the exercise by the lender of an exchange right.
The foregoing comments are given in accordance with the practice referred to in paragraph 21 of the Information Circular 70-6R2 dated September 28, 1990, and are not binding on the Department.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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