29 April 1997 External T.I. 9637265 - DIVIDENDS EXCEPTED FROM 55(2)

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:

Application of proposed amendments in bill c-69 (1) whether disposition of property to be exempted under 55(3)(a)(i) has to meet description of both clauses (A) and (B) of 55(3)(a)(i). (2) whether redemption of shares for its fmv would meet the description of both clause (A) and (B).

Position:

(1) no. (2) yes

Reasons:

Clause (A) is in respect of the payment of a dividend or reduction in PUC and Clause (B) is in respect to the disposition of property for proceeds that are not less than fmv.

	               	    5-963726
XXXXXXXXXX		                   J. Teixeira

Attention: XXXXXXXXXX

April 29, 1997

Dear Sirs:

We are writing in response to your letter of October 31, 1996 wherein you requested our opinion on the application of the proposed amendments to paragraph 55(3)(a) set out in Bill C-69, which was given first reading in the House of Commons on December 2, 1996.

Our Comments

As stated in paragraphs 22 and 23 of Information Circular 70-6R3, the Rulings Directorate provides written opinions on interpretation of specific provisions of the law or proposed legislation. However, the Directorate does not provide any opinion that relates to a contemplated transaction. For such transactions, an advance income tax ruling should be requested. However, we will provide the following general comments.

We agree that, in order for a disposition of property to be excluded from proposed subparagraph 55(3)(a)(i), it need only be described in one of clause (A) or clause (B) of the subparagraph; it need not be described in both clauses.

Where a share whose fair market value exceeds its paid-up capital is redeemed for an amount of cash equal to its fair market value, the disposition of the cash to the shareholder on the redemption will ordinarily be described in one or both of clauses 55(3)(a)(i)(A) and (B). Whether the disposition of the shares on the redemption or any other disposition of property or increase in interest as part of the same series of transactions would be described in subparagraphs 55(3)(a)(i) to (v) would depend on the circumstances.

These comments represent opinions based on our interpretation of the proposed law as tabled in Bill C-69 as it will apply generally, if enacted as proposed. They may, however, not always be appropriate in the circumstances of a particular case. As indicated in paragraph 22 of Information Circular 70-6R3, these opinions are not rulings and, accordingly, are not binding on Revenue Canada.

Yours truly,

for Director
Reorganizations and International Division
Income Tax Rulings and Interpretations
Directorate
Policy and Legislation Branch