27 November 1997 Internal T.I. 9706977 - DETERMINATION OF PAID-UP CAPITAL

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.

		November 27, 1997

G. Reid 	Income Tax Rulings and
	Toronto Centre TSO	Interpretations
		Directorate
	Attention;  Dominic Tiu	J. Teixeira
	               443-1-2		(613) 957-2095

		7-970697

Determination of Paid-up Capital

This is in response to your memorandum of March 6, 1997 wherein you requested our opinion as to whether brokerage fees paid by the issuer to an underwriter in a public share issue would form part of the paid-up capital, as defined in subsection 89(1) of the Income Tax Act (the "Act"), of the shares issued by a corporation incorporated under the Canada Business Corporations Act (the "CBCA").

Discussion

The question of whether brokerage fees should be excluded from paid-up capital should be determined by first looking at the corporate law requirements as to what must be included in the stated capital account for the class or series of shares that will be issued. Subsection 25(1) of the CBCA provides that shares may be issued at such times and to such persons and for such consideration as the directors may determine. However, the amount to be added to a corporation's stated capital account, with certain exceptions like non-arm's- length transactions as provided in subsection 26(3) of the CBCA, does not appear to be discretionary, as subsection 26(2) of the CBCA Act states that:

"A corporation shall add to the appropriate stated capital account the full amount of any consideration it receives for any shares it issues."

The plain reading of these words would mean that the amount to be added to the relevant stated capital account would be the full amount of any consideration received by a corporation for the issuance of its shares without a reduction to this amount for any costs incurred by an issuer in the course of issuing or selling its shares unless there is provision in the CBCA that requires an issuer to reduce this amount. There is no provision in the CBCA that would require a corporation to reduce the full amount of any consideration it receives.

Section 41 of the CBCA allows the directors to authorize the corporation to pay a reasonable commission as consideration on the issuance of its shares. But, it does not require that the amount to be added to the stated capital account of the shares to be issued be reduced by the amount of this commission.

Conclusion

It is our opinion that the amount to be added to the stated capital account, and thus the paid-up capital, of the class or series of shares issued would not be reduced by the brokerage fees paid by the corporation.

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