29 June 1995 External T.I. 9406425 - DISPOSITION

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:

Would the conversion of common shares into preferred and common shares be considered to meet the requirement that all shares be disposed for subsection 86(1) purposes?

Position TAKEN:

no

Reasons FOR POSITION TAKEN:

This position taken was taken in previous situations.

		5-940642
XXXXXXXXXX	D. Yuen

Attention: XXXXXXXXXX

June 29, 1995

Dear Sirs:

Re: Subsection 86(1) of the Income Tax Act¹

We are writing in response to your letter of March 8, 1994 wherein you requested our opinion on whether subsection 86(1) would apply in the circumstances described in an enclosed article where common shares are converted into preference shares and common shares. You are concerned that the taxpayer may be viewed as not having disposed of "all the shares of any particular class....owned by him" as required by subsection 86(1) because the taxpayer would still own common shares after the conversion.

Our Comments

It is our view that the conversion of common shares into preference shares and common shares would not meet the requirement in subsection 86(1) that the taxpayer dispose of all the shares of a class owned by him. However, it is also our view that the provisions of section 51 may be applicable in such circumstances, where the exchange occurs after December 21, 1992 (the coming-into-force date of amendments to section 51).

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. We apologize for our delay.

Yours truly,

for Director
Reorganizations and Foreign Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch

ENDNOTES

¹ All statutory references in this letter are to the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c. 1, as amended