4 June 1997 External T.I. 9702685 - AMALGAMATION

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:

Is a warrant a share for the purposes of 87(1) and 87(4).

Position: No.

Reasons

They are two distinct securities.

                                       		5-970268
XXXXXXXXXX	                                  D.A. Palamar
(613) 957-2127

Attention: XXXXXXXXXX

June 4, 1997

Dear Madam:

Re: Technical Interpretation Request -
Meaning of shares for purposes of subsections 87(1) and (4)

This is in response to your letter of January 30, 1997 and confirms the comments made in our recent telephone conversation.

You have described a situation which can be summarized as follows. Aco and Bco will amalgamate to form Amalco. On the amalgamation all of the shareholders of Bco will receive shares of Amalco in exchange for their Bco shares and all of the shareholders of Aco will receive special warrants of Amalco in exchange for their Aco shares. Immediately after the amalgamation, Amalco will file a prospectus to publicly list its shares.

The terms of the special warrants will provide that:

1.they may be exercised at any time before the date which is 30 days after the filing of the prospectus;

2.if not exercised before the 29th day after the filing of the prospectus they will automatically be exercised on the date which is 30 days after the filing of the prospectus;

3.the exercise price will be nil; and

4.they will be convertible into such number of Amalco shares that have a fair market value equal to the Amalco warrant at the time of conversion.

You have asked us whether the amalgamation between Aco and Bco will be an amalgamation within the meaning of subsection 87(1) of the Income Tax Act (the "Act") and whether the exchange by the shareholders of Aco of their Aco shares for special warrants of Amalco would qualify for rollover treatment pursuant to subsection 87(4) of the Act.

Our Views

In our view the amalgamation of Aco and Bco would not qualify as an amalgamation under subsection 87(1) of the Act because the shareholders of Aco will receive special warrants of Amalco because of the merger and not shares as required by paragraph 87(1)(c). Similarly, the receipt of special warrants instead of shares of Amalco by Aco's shareholders will preclude the application of subsection 87(4) to the exchange of their Aco shares.

Yours truly,

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