1 December 1998 Income Tax Severed Letter E9829490.txt - MEANING OF SERIES,SIGNIFICANT INCREASE

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.

TEI Conference
December 1, 1998

Question XXIII

SECTION 55

During the 1997 liaison meeting with the Department of Finance, Finance responded to TEI questions V(a) and (c) based on assumptions concerning Revenue Canada’s positions (see the attached copies of the TEI questions and Finance’s responses). Do the Department of Finance’s assumptions correctly reflect Revenue Canada’s views?

Department's Position

Whether a particular transaction is part of a series of transactions is a question of fact and will be determined on the circumstances of each case. In the case of 454538 Ontario Limited, Sarchuk, T.C.C.J. stated that “The phrase ‘series of transactions or events’ must be read in its grammatical and ordinary sense reflecting the context in which it is found, the scheme and object of the Act and the intention of Parliament. Bearing this stricture in mind it seems reasonable to conclude that in order for the events to form part of a series they must follow each other in time and must somehow be logically and reasonably connected to one another.” By virtue of subsection 248(10), a series of transactions or events will also include any related transactions or events undertaken in contemplation of the series.

In determining whether an increase in interest in a corporation is "significant" in the context of paragraph 55(3)(a), an analysis of the increase both in terms of an absolute dollar amount and on a percentage basis is required. Whether the dollar amount of the increase is significant depends, in part, on a comparison of the increase in relation to the dollar value of all interests in the corporation. However, we are of the view that a large increase in absolute terms may be significant even if it represents a relatively small portion of the total interests in the corporation. There is no specific test to determine whether an increase in the percentage interest in a corporation by an “unrelated person” is significant and, therefore, each case must be decided on its particular facts. In many situations, there may be no increase in the value of a shareholder’s interest in a company as expressed in dollars (for example, where shares owned by another shareholder are redeemed at fair market value); in such circumstances, it is our practice to compare the value of a person's interest in the corporation as a percentage of the value of all interests in the corporation immediately before the cancellation of the shares to the value of that person's interest in the corporation as a percentage of the value of all interests in the corporation immediately after the share cancellation.

Author:	Daryl Boychuk
File:		982949
Date:		November 18, 1998