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: - What is the PUC of a class of shares where the corp can chose an amount that may be lower than the fair market value of the property received? Will we take the amount in the financial statements where corporate records are silent?
Position TAKEN: - Where corporate records are silent, the stated capital for accounting purposes (approved by the board of directors) will be the starting point in determining PUC for the Act.
Reasons FOR POSITION TAKEN: - see file 913151
942606
XXXXXXXXXX M.P. Sarazin
(613) 957-2118
Attention: XXXXXXXXXX
January 31, 1995
Dear Sirs:
Re: Determination of Paid-up Capital of Shares
This is in reply to your letter dated October 5, 1994 wherein you requested our comments regarding the determination of the paid-up capital ("PUC"), within the meaning assigned by subsection 89(1) of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, consolidated to June 23, 1994 (the "Act"), of a class of shares of a corporation in the situation described in your letter.
It appears that your request for an opinion involves both specific taxpayers and completed transactions. Since the responsibility for determining the tax consequences arising from completed transactions rests with the district taxation offices, the appropriate district taxation office may, upon disclosure of all of the relevant facts, be able to assist you in clarifying the tax consequences pertaining thereto.
Although we cannot comment directly on your situation, we are able to provide you with the following general comments on the determination of stated capital, accounting capital and paid-up capital of any shares.
Generally, the stated capital of any class of shares of a corporation is the amount determined under the corporation's incorporating statutes and this amount would be the amount reported by the corporation in its financial statements. Therefore, we would expect that the legal stated capital of a class of shares would normally be equal to the share capital of that class of shares for accounting purposes. However, there may be isolated cases where there may be a difference (for example - due to a difference between corporate statute requirements and generally accepted accounting principles) between the stated capital and the share capital for accounting purposes of the class of shares and we would expect, in such cases, that the difference would be disclosed in the corporation's financial statements along with the reasons for the difference. As explained in paragraphs 2 and 7 of Interpretation Bulletin IT-463R, the PUC of a class of shares is determined by making certain amendments, required under the various provisions of the Act, to the stated capital of the class of shares. We are of the view that the determination of the stated capital of a class of shares is a critical step in determining the PUC of the class of shares for purposes of the Act and the share capital amount regarding the class of shares for accounting purposes.
Under most corporate statutes, for example subsection 26(1) of the Canada Business Corporations Act (the "CBCA"), a corporation is required to maintain a separate stated capital account for each class of its issued shares. In addition, subsection 26(3) of the CBCA allows a corporation to add all or any portion of the consideration received for the shares from a non-arm's length person to the stated capital account of the class of such shares. In the situation where subsection 26(3) of the CBCA may apply but the corporation has not maintained a stated capital account with respect to such shares as required by subsection 26(1) of the CBCA, we are of the view that the share capital amount of the particular class of shares recorded in the corporation's financial statements which have been approved by the board of directors of the corporation will represent the stated capital of such class of shares for the purposes of determining the PUC of the class of shares for purposes of the Act.
We trust that the above comments will be of assistance.
Yours truly,
for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch
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