14 August 1997 External T.I. 9719355 - COST AMOUNT, SHARE AND WARRANT

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:

Cost amount of shares acquire under warrant rights?

Position:

Cost of warrant added to cost paid for share under warrant rights.

Reasons:

Subsection 49(3) applies in determining adjusted cost base.

	                                   	971935
XXXXXXXXXX                                	M.P. Sarazin

Attention: XXXXXXXXXX

August 14, 1997

Dear Sirs:

Re: Cost Amount of Warrants for Purposes of Part XI

This is in reply to your letter dated July 17, 1997, wherein you requested a technical interpretation with respect to the cost amount of a common share acquired by a registered retirement savings plan ("RRSP") on the exercise of a right under a warrant to acquire the common share.

Property acquired by an RRSP must be recorded at its "cost amount" for the purposes of calculating taxes under Part XI of the Income Tax Act (the "Act"). The term "cost amount" is defined in subsection 248(1) of the Act and for property held in RRSPs, usually means:

(a)the property's adjusted cost base where the property is non-depreciable capital property;

(b)the property's amortized cost where the property is a debt or a right to receive an amount; and

(c)the property's cost to the extent it has not been deducted in computing income where the property is not otherwise specifically referred to elsewhere in the definition.

The definition of "cost amount" also refers to several other classes of property which are not usually held in RRSPs and are not included in the above list.

We are of the view that the cost of the warrant would be added to the amount paid to acquire the share on the exercise of the right under the particular warrant. This position is confirmed in paragraph 4 of Interpretation Bulletin IT-96R5 wherein it states:

"Subsection 49(3) provides that where an option is exercised, the holder adds the adjusted cost base of the option to the cost of the property acquired."

We trust the above comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch