1999 Ruling 9929883 - CREDIT UNION 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: Are shares to be issued by a credit union shares or debt obligations for purposes of the ITA.

Position: They are shares for all purposes of the ITA

Reasons: The shares are equity shares as defined in the XXXXXXXXXX. Despite the fact that subsection 137(4.1) treats the dividends as being interest, there is nothing in the ITA that negates the form of the securities.

XXXXXXXXXX
XXXXXXXXXX 992988
XXXXXXXXXX XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: XXXXXXXXXX

We are writing in response to your correspondence of XXXXXXXXXX in which you had requested an advance income tax ruling on behalf of the above corporation.

You confirm on behalf of XXXXXXXXXX that, to the best of your knowledge, none of the issues in this request are being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed or under objection, and none are the subject of a previous ruling issued by the Directorate.

Unless otherwise indicated, all statutory references herein are to provisions of the Income Tax Act R.S.C. 1985 (5th Supp.), c.1 as amended (the "Act")

In this ruling "ACO" refers to XXXXXXXXXX.

Facts

1. ACO is a company incorporated under the Credit Union Act of XXXXXXXXXX. XXXXXXXXXX ACO's Business Number is XXXXXXXXXX and it files its income tax returns at the XXXXXXXXXX Taxation Centre.

2. ACO is a "credit union" under s 137(6) of the Income Tax Act (Canada) ("the Act").

3.

XXXXXXXXXX

4. ACO currently has four classes of shares, which are redeemable at XXXXXXXXXX $XXXXXXXXXX under normal circumstances.

5. The Class XXXXXXXXXX shares are membership shares and are required to be held by all members. They are the only class of shares that carry the right to vote at a general meeting of members and are retractable at par at the members' request upon cessation of membership.

6.

XXXXXXXXXX

7.

XXXXXXXXXX

8.

XXXXXXXXXX

Proposed Transactions

9. ACO intends to issue XXXXXXXXXX shares. These shares will only be offered to members of ACO and the shares will not be listed on a prescribed stock exchange. The XXXXXXXXXX shares will either be issued for cash or exchanged for XXXXXXXXXX shares.

10. The XXXXXXXXXX shares will carry the following rights and restrictions:

• par value of $ XXXXXXXXXX per share;
• dividends will be non-cumulative with a stated dividend rate attached to the share class;
• will not have voting rights, except in respect of matters which affect the rights attributable to the XXXXXXXXXX shares;
• redeemable solely at ACO's discretion for an amount equal to the shares' par value plus any declared, but unpaid dividends;
• are equity shares as defined in the XXXXXXXXXX and will share pari passu upon liquidation or wind up of ACO with the XXXXXXXXXX shares; and
• dividends will be payable in cash or as stock, at the option of ACO.

11. It is ACO's intention, but not obligation, to offer to redeem up to XXXXXXXXXX% of the outstanding Class F shares annually.

12. It is anticipated that ACO will declare annual dividends on the XXXXXXXXXX shares at a stated rate expected to be set at an amount equivalent to current interest rates being offered on seven to ten year deposits. This rate, or another chosen depending upon market conditions at the time of offer, will be a commercially marketable rate.

13. Dividends declared on the XXXXXXXXXX shares will be paid on the earlier of the date of redemption, and a date to be fixed when the shares are issued. ACO expects such date to be approximately 10 years from the date of issuance of the shares.

Purpose Of The Proposed Transactions

ACO wishes to expand its equity base, XXXXXXXXXX. It wants to enhance its ability to generate business so that it may compete in a more effective way in the increasingly competitive financial institution sector in Canada.

Rulings Provided

Provided that the above statements of fact are complete and accurate and that the proposed transactions are undertaken as described, the following rulings are provided:

A. The XXXXXXXXXX shares offered by ACO are "shares" under subsection 248(1) and are not debt obligations.

B. Subsections 12(3) and 12(4) will not apply in respect of dividends paid or payable on the XXXXXXXXXX shares.

C. The XXXXXXXXXX shares are qualified investments for RRSP purposes under section 146(1) and Regulation 4900(1)(f).

D. Part VI.1 of the Act will not apply upon declaration or payment of the XXXXXXXXXX dividends.

E. Subsection 245(2) will not be applicable as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.

These rulings are provided subject to the limitations and qualifications set out in Information Circular 70-6R3 issued on December 30, 1996 and are binding upon the CCRA provided that the proposed transactions are completed on or before XXXXXXXXXX. The rulings are based on the Act and the Income Tax Regulations in their present form and do not take into account the effects of any proposed amendments thereto.

We would further note that nothing in this letter should be construed as confirmation that the CCRA has reviewed or accepted any tax consequences arising from the facts or proposed transactions described herein other than those specifically confirmed in the rulings provided.

Yours truly,

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