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.
XXXXXXXXXX D.A. Palamar
January 3, 1997
Re: Technical Interpretation Request - Validity of Share
This is in response to the above-captioned request wherein
you asked us for our opinion in respect of the fact
situation described below.
Company A is incorporated in 1990. It decides to
amend its share structure and this is done
internally within the corporation by resolution and
the issue of share certificates on June 15, 1991.
Articles of Amendment in respect of the change in
share structure are not filed with the Director of
the Corporations Branch, as required by subsection
171 of the Ontario Business Corporations Act (the
"OBCA"), until December 1991.
You have requested our views as to whether we would consider
the payment of dividends by Company A in June of 1991 to be
Your question would appear to relate to a completed
transaction involving an identifiable taxpayer. As such, it
is subject to review by the Taxation Services Office having
responsibility for the area in which the taxpayer resides.
We can, however, provide you with the following general
Section 273 of the OBCA, inter alia, deals with the
effective date of Articles of Amendment. That section does
not contain any provisions which would make Articles of
Amendment effective prior to their receipt by the Director
of the Corporations Branch.
In the case of Dale v. The Queen 94 DTC 1101 (T.C.C.) the
Court had to consider whether a capital dividend paid on a
class of preferred shares was effective for purposes of the
Income Tax Act (the "Act"). The necessary shareholders' and
directors' resolutions creating and issuing the preferred
shares and declaring the dividends had been passed. The
company had, however, neglected to obtain supplementary
letters patent authorizing the creation and issuance of the
preferred shares. The company eventually obtained a court
order which purported to retroactively authorize the
necessary changes to the company's capital.
In finding that the capital dividend in question was not
validly paid Judge Bowman made the following comment at page
For dividends to be payable on a class of shares at
a particular time all steps necessary for the valid
issuance of the shares must have in fact and in law
have been completed at that time. Dividends cannot
become payable on embryonic shares.
Accordingly, in our view, dividends paid on shares not
validly issued would not be valid for purposes of the Act.
Reorganizations and International Division
Income Tax Rulings and
Policy and Legislation Branch
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