3 December 2018 External T.I. 9430935 - S 116 CERTIFICAT

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.

								5-940226
XXXXXXXXXX						M.D. Gervais
(613) 957-8953

Attention: XXXXXXXXXX

March 1, 1995

Dear Sir:

Re: Section 116 Certificate and Subsection 84(9) of the Income Tax Act

This is in reply to your letter of November 24, 1994, wherein you requested our opinion on section 116 of the Income Tax Act (the "Act"). More specifically, you asked if section 116 of the Act applies in a situation where a Canadian corporation redeems its shares owned by a United States corporation for a redemption price equal to the adjusted cost base of the shares. In addition, you asked if the purchaser has potential liability pursuant to subsection 116(5) of the Act and if the non-resident person is obliged to comply with subsection 116(3) of the Act.

COMMENTS

Section 116 of the Act applies to a disposition by a non-resident person of taxable Canadian property, other than excluded property. A share of the capital stock of a corporation resident in Canada constitutes taxable Canadian property within the meaning of that expression as defined in subparagraph 115(1)(b)(iii) of the Act and could therefore be the subject of a notice in accordance with subsections 116(1) and (3) of the Act. A share of the capital stock of a public corporation could also be a taxable Canadian property by virtue of subparagraph 115(1)(b)(iv) of the Act; however, such a share constitutes an excluded property and is therefore not subject to subsections 116(1) and (3) of the Act. Where shares of a corporation are redeemed, subsection 84(9) of the Act deems the shareholder to have disposed of the shares to the corporation. Accordingly, the provisions of section 116 of the Act apply to the redemption of a share of the capital stock of a corporation held by a non-resident if the corporation redeeming the shares is a resident of Canada and is not a public corporation, regardless of the amount of the adjusted cost base and proceeds of disposition of the share.

By virtue of subsection 116(1) a non-resident may send a notice to the Minister setting out the information requested in that subsection before the disposition (redemption of shares). Otherwise, after the disposition, he must send to the Minister a notice setting out the information requested in subsection 116(3) of the Act. A non-resident vendor who has filed notice in accordance with subsection 116(1) of the Act before the disposition, is also required to comply with the requirements of subsection 116(3) of the Act and file another notice after the disposition if the circumstances of the proposed disposition as disclosed in the first notice filed before the disposition differ from those of the actual disposition. The notice sent by virtue of subsections 116(1) or (3) must be accompanied by a payment equal to 33 1/3% of the capital gain (proceeds of disposition over the adjusted cost base) or by providing an appropriate security.

With regard to the liability of the corporation redeeming its shares held by a non-resident, we note that the non-resident whose shares are being redeemed is generally required to comply with the provisions of subsection 116(3) of the Act by filing a notice containing the required information. Where the proceeds of disposition of the share are equal to the adjusted cost base of the shares, no amount would be required to be paid to the Receiver General by virtue of paragraph 116(4)(a) of the Act and the Minister would issue a certificate in prescribed form which would remove any liability of the redeeming corporation under subsection 116(5) of the Act.

The above comments are an expression of opinion only and are not binding on the Department as explained in paragraph 21 of Information Circular 70-6R2.

We hope these comments will be of assistance to you.

Yours truly,

for Director
Reorganizations and Foreign Division
Rulings Directorate
Policy and Legislation Branch