18 November 1997 External T.I. 9728875 - SHORT-TERM PREFERRED SHARES

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:

Whether modification to issuer's redemption powers causes shares to become "short-term preferred shares".

Position:

Question of fact.

Reasons:

Although words "is or may be required" in paragraph (a) of definition of "short-term-preferred shares" is interpreted to exclude redemption at the option of the issuer, we are unable to make this finding without complete review of circumstances surrounding the reason for the modification to the power of redemption.

972887
XXXXXXXXXX P. Spice

Attention: XXXXXXXXXX

November 18, 1997

Dear Sirs:

Re: Short-Term Preferred Share Definition

This is in reply to your fax of October 29, 1997, in which you ask whether a modification to the terms of certain taxable preferred shares will cause them to come within the definition of "short-term preferred shares" ("STPS") as contained in subsection 248(1) of the Income Tax Act (the "Act"). In particular you ask whether a change to the early redemption article of the shares to modify the rates attached to the shares will cause the shares to be considered "shares ... where the (issuer) or a specified person in relation to the (issuer) is or may, at any time within 5 years from the date of its issue, be required to redeem" (paragraph 248(1)(a) of the definition of STPS, modified, as the circumstances require, by paragraphs 248(1)(c) and (e) of the same definition).

Whether changes to the terms and conditions of the shares or to a related agreement in respect of the shares would cause the shares to become STPS is a question of fact to be determined on a case-by-case basis. We do not have any general guidelines.

We would be pleased to consider your request in the context of a request for an advance income tax ruling after a review of the original terms and conditions of the shares and, if any, the agreements respecting the shares, a draft of the proposed modification and a description of the circumstances surrounding the reason for the modification including identification of the party or parties who require the modification and their relationship, if any, to the holders of the taxable preferred shares.

Yours truly,

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