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:
How is a person's percentage of share ownership in a corporation calculated for the purposes of 4901(2.2) of the Act?
Position:
It is calculated as if only the particular person has exercised a right to acquire a share of a corporation not as if each and every shareholder of a corporation has exercised his right.
Reasons:
The wording of 4901(2.2).
NOTE TO FILE
Deferred Income Plans - Qualified Investments
THE LAW
News release 92-087 on December 2, 1992 introduced the definition of "connected shareholder". It was published by the Canada Gazette, Part II, July 13, 1994, applicable after December 2, 1992. The definition was as follows:
"Connected shareholder" - of a corporation is a person who is a specified shareholder of the corporation or a person who would be a specified shareholder of the corporation if
(a)....
(b) each person or partnership that has a right under a contract, in equity or otherwise, either immediately or in the future and either absolutely or contingently, to acquire a share of a class of the capital stock of a corporation owned the share.
News release 94-111 on November 29, 1994 (Canada Gazette, Part II, November 15, 1995, applicable after December 2, 1992) proposed changes to eliminate the 10-per-cent shareholding restriction with respect to small business corporations and cooperative corporations for arm's length investments of less than $25,000 in the shares of such corporations. To do so the definition of "connected shareholder" was modified to delete paragraph (b) and new subsection 4901(2.2) was introduced so that a person is also treated as a "connected shareholder" if the person would be a connected shareholder if rights were considered. The technical notes stated that this new subsection is similar to deleted paragraph (b) of the existing definition of "connected shareholder". Subsection 4901(2.2) is as follows:
(2.2) For the purpose of this Part, a person is deemed to be a connected shareholder of a corporation at any time where the person would be a connected shareholder of the corporation at that time, if, at that time,
(a)...
(b)the person owned each share of a class of the capital stock of a corporation that the person had a right at that time under a contract, in equity of otherwise, either immediately or in the future and either absolutely or contingently, to acquire; and
(c)...
ANALYSIS
File #E9300715 - March 10, 1993
We were asked how to calculate a person's percentage of share ownership in the corporation:
- Do we consider that only the particular person has exercised his right to acquire a share of the corporation, OR
-Do we consider that each and every shareholder of the corporation has exercised his right to acquire a share of the corporation.
We responded that the latter interpretation is applicable. We favoured this interpretation because the law stated "each person" rather than "the person" or "the particular person".
Phone call - September 25, 1996
We were asked whether our interpretation in file #E9300715 would still be the same even if the law was modified from "each person" to "the person". An examination of the technical notes did not reveal any changes in fiscal policy.
XXXXXXXXXX
CONCLUSION
It is our opinion, that for the purpose of paragraph 4900(2.2)(b), the person's percentage of share ownership in a corporation should be calculated as if only the person has exercised a right.
Prepared by A. St-Amour
September 26, 1997
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