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: Does position in paragraph 40 of IT-474R apply where numerous share classes of a predecessor are converted into numerous share classes of the amalgamated corporation?
Position: Yes
Reasons: No basis to restrict position to only 2 classes.
XXXXXXXXXX 5-983222
D. Yuen
Attention: XXXXXXXXXX
February 23, 1999
Dear Sirs:
We are writing in response to your letter of December 8, 1998 wherein you requested our comments regarding the amalgamation of Canadian corporations. You have referred to paragraph 40 of Interpretation Bulletin IT-474R (“IT-474R”) which indicates that where the amalgamation agreement provides that the preferred and common shares of the predecessor corporation are to be converted into preferred and common shares of the new corporation, Revenue Canada will accept that the adjusted cost base of each class be maintained at the same amounts as they were in the predecessor corporation. You have asked the following:
“Our question is where there are several classes of common shares and several classes of preferred shares of a predecessor corporation owned by a shareholder, and the amalgamation agreement provides that the preferred and common shares of the predecessor corporation are to be converted into preferred and common shares of Amalco, will Revenue Canada extend the position in paragraph 40 of IT-474R? In other words, does the IT-474R position apply only where there are two classes of shares, or will it apply where there are numerous classes of shares of the predecessor corporation and of Amalco?”
The position contained in paragraph 40 of IT-474R will generally apply to situations where the amalgamation agreement provides for the conversion of numerous classes of preferred and common shares of the predecessor corporation into numerous classes of preferred and common shares of Amalco, the company formed by the amalgamation. However, the position stated in paragraph 40 of IT-474R may not be relied upon in order to inappropriately reduce a gain or create a loss on a share.
These comments are provided in accordance with the guidelines set out in paragraph 22 of Information Circular IC-70-6R3 dated December 30, 1996 issued by Revenue Canada and are not considered binding on Revenue Canada.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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