25 January 1999 Ministerial Letter 9833058 - DISPOSITION OF SHARES ON MERGER

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.

XXXXXXXXXX

Dear Colleague:

Thank you for your letter of December 7, 1998, requesting my comments in response to the concerns of XXXXXXXXXX, regarding the merger of XXXXXXXXXX.

XXXXXXXXXX.

As a result of the merger, these shareholders received shares in the merged corporation, XXXXXXXXXX, in exchange for their shares in XXXXXXXXXX.

Generally, a Canadian resident taxpayer will have a capital gain from the disposition of any property if he or she disposes of the property for proceeds of disposition in excess of the taxpayer’s adjusted cost base for the property and any outlay or expense in respect of the disposition. The word “disposition”, as defined in the Income Tax Act, includes any transaction or event by which any share owned by a taxpayer is converted by virtue of an amalgamation or merger. For the purposes of calculating a taxpayer’s capital gain, or loss, from the disposition of shares of a merging foreign corporation in exchange for shares of the merged corporation, the taxpayer generally will be considered to have received proceeds of disposition equal to the fair market value of the merged corporation shares received on the exchange. Accordingly, the disposition of shares of XXXXXXXXXX by a Canadian resident could result in a capital gain or loss for purposes of determining the resident’s 1998 income for tax purposes.

Any changes to the rules governing the taxation of a gain resulting from the merger of two foreign corporations and any other tax relief measures would require amendments to the Income Tax Act. Since tax policy issues and amendments to the Act are the responsibility of the Department of Finance, any changes would have to be considered by that Department.

I trust that these comments will be of assistance.

						Yours sincerely,

						Herb Dhaliwal, P.C., M.P.

C.C. Minister’s Office
Political Assistant

J. E. Grisé
957-2059
January 6, 1999
983305