17 March 1997 Internal T.I. 9622606 - SHARES HELD IN ESCROW

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:

Whether our written advice to a Tax Services office concerning a particular individual taxpayer constitutes a change in our general views on the subject of escrow shares.

Position:

No.

Reasons:

The Department's longstanding views remain unchanged.

				March 17, 1997

	Brian Darling	HEADQUARTERS
	Director		J.D. Brooks
	Financial Industries Division		957-2103

			962260

Shares Held in Escrow

This is in reply to your memorandum of June 25, 1996 in which you raised concern that the public might feel the Department had changed its view on this topic due to an internal memorandum dated August 28, 1995.

The memorandum to which you referred (952186) was a follow-up to a prior memorandum (933271, dated June 23, 1995). The first memorandum was very detailed and specific and could not be released to the public due to confidentiality requirements. It is unfortunate that the second internal memorandum could not have been associated by the public with the first detailed memorandum and that the public has focused on only one sentence without being able to read the memoranda in their entire context or attempting to read the second memorandum in its entire context. In addition, the article in the March 1996 edition of the Window on Canadian Tax Newsletter has compounded the problem by identifying the second memorandum under the caption "Major Developments" and making extrapolations as to its possible application.

In our view, the comment in the Tax Window article leads to an incorrect conclusion that a person may be able to allocate the paragraph 53(1)(j) adjustment to the shares sold. The Department's view remains that, notwithstanding that a certain number of a person's shares may be subject to an escrow agreement, one must recognize that shares are fungible property and thus it is not feasible to determine which precise shares are sold in a transaction.

Accordingly, we confirm with you that our memorandum of August 28, 1995 should NOT be interpreted as a change in the Department's general views concerning escrowed shares. That is, escrowed shares and free shares of the same class of shares of the capital stock of a corporation are considered to be identical properties and, thus, any adjustment required by paragraph 53(1)(j) of the Income Tax Act is effectively averaged over all of the shares on hand, whether free shares or escrowed shares.

Bryan W. Dath
Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch