16 May 1994 TEI Roundtable Q. 1, 9411060 - RESTRUCTURING COSTS

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:

1.Meaning of "rescheduling, restructuring, conversion and substitution" for purposes of draft 20(1)(e)(ii.2)

2. Would the repayment of a debt obligation by the issue of another debt obligation constitute conversion

Position TAKEN:

1.Department does not have a position on them. Generally, rescheduling and restructuring include alteration of payment schedules, extension of maturity dates, alteration of interest rates and conversion into a share or another debt obligation.

2. Generally, yes, but it is a question of fact.

Reasons FOR POSITION TAKEN:

1. These terms are not defined terms and must be given their ordinary meaning.

2. It is a question of fact in each case.

Revenue Canada Round Table
TEI Conference
May 16, 1994

Question XIII

AUGUST 30, 1993 DRAFT LEGISLATION SUBPARAGRAPH 20(1)(E)(II.2)

The August 30, 1993 draft legislation proposes to amend paragraph 20(1)(e) by adding subparagraph 20(1)(e)(ii.2) dealing with amounts relating, inter alia, to "rescheduling or restructuring of a debt obligation" which provides for "the conversion or substitution of the debt obligation to or with a share or another debt obligation ..."

1.What will constitute "rescheduling", "restructuring", and "conversion or substitution of the debt obligation"

2. What conditions must be present to constitute a "conversion or substitution"? For example, will the repayment of a debt obligation by the issue of another debt obligation constitute a "conversion or substitution"?

Department's Position

Since this is draft legislation we do not as yet have any experience with this law. However, while the terms "rescheduling" and "restructuring" are not defined in the Act, the Department considers that the terms generally describe changes to the rights and obligations of the parties to the debt obligation. They may include, inter alia, alteration of payment schedules, extension of maturity dates, alteration of interest rates and conversion or substitution of the original debt obligation to or with a share or another debt obligation.

The terms "conversion or substitution" imply an exchange of the original debt obligation for another share or debt obligation. Whether or not a particular debt refinancing results in a conversion or substitution is a question of fact. Generally, a repayment of a debt obligation by the issue of another debt obligation would constitute a conversion or substitution.