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:
Can a shareholder of a CCPC crysallize gains on a merger with a public corporation.
Position:
No.
Reasons:
No continuity of shares. Merged corporation does not become public because of the listing.
XXXXXXXXXX 5-962766
Attention: XXXXXXXXXX
September 26, 1996
Dear Sirs:
Re: Election under Subsection 48.1(1) of the Income Tax Act (the "Act")
This is in reply to your letter of August 16, 1996, requesting confirmation of the application of subsection 48.1(1) of the Act to a series of transactions.
Your letter outlines what appears to be a series of substantially completed actual transactions. Accordingly, any determination of the tax consequences must be made through your local Tax Services Office. Nevertheless, we can provide the following general comments which may be of assistance to you.
Briefly, you described a situation where a Canadian controlled private corporation and a public corporation merged to form a new corporation. Concurrent with that merger, the corporations also applied to have the shares of the merged corporation listed on a prescribed stock exchange in Canada. However because of certain delays the documentation required to have the shares listed were not filed with the exchange for a period of time.
You also noted that a number of shareholders wished to make an election under the provisions of subsection 48.1(1) of the Act. Under this provision, an individual can make the election if at any time in a year the individual owns shares of a small business corporation as capital property and immediately after that time the shares become shares of a public corporation because of a listing of a class of the corporation's shares on a prescribed stock exchange in Canada.
With respect to when shares are listed on an exchange it is the Department's view that shares will be regarded as being listed on a stock exchange so long as a full listing (i.e. an unqualified listing of the shares exists. Accordingly the Department takes the view that shares that are conditionally listed will not be listed for the purposes of the Act until the time at which all of the conditions for their listing have been satisfied. However, the Department is prepared to accept that shares are listed on an exchange if the exchange considers them to have an unqualified listing prior to the date set for the shares to be called for trading.
With respect to the application of subsection 48.1(1) of the Act, we would also like to draw your attention to the provisions of paragraph 87(2)(ii) of the Act which provides that where a predecessor corporation was a public corporation immediately before an amalgamation, the new corporation created through the amalgamation will be deemed to be a public corporation at the commencement of its first taxation year. Accordingly, if this provision applies, it would not appear that an election under subsection 48.1(1) of the Act could be made since the merged corporation would not become a public corporation as a consequence of the listing of a class of its shares. Furthermore, there is no provision by which the shares of a predecessor corporations are considered to be the same shares as the shares of the continuing corporation for the purposes of this election. Accordingly an individual would not at any relevant time have shares of a small business corporation with respect to which the individual could make an election.
The above comments are based on our understanding of the law as it applies in general and may or may not apply to the circumstances of a particular case. They do not form an advance income tax ruling and they are not binding on the Department.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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