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.
Dear: XXX
This is in reply to your letter of April 16, 1981 in which you were concerned about the Department's interpretation of the words "as part of a series of transactions or events that commenced before April 22, 1980" as they are used in subsection 55(2) of the Income Tax Act (the Act).
The Department's view is as follows:
1. The commencement of a series of transactions or events or for that matter the end of a series of transactions or events is a question of fact and the determination of both will depend on the circumstances surrounding each case.
2. Where high-low preference shares have been issued prior to April 22, 1980 but not redeemed until after that date, subsection 55(2) of the Act will not apply to the deemed dividend received on the redemption of those shares. If a binding purchase and sale agreement was signed before April 22, 1980 and if the necessary steps were taken to receive part of the proceeds (e.g., Rolling the shares to be disposed of to a holding company) as a tax-free dividend before April 22, 1980, then subsection 55(2) of the Act will not apply to the tax-free dividends which are received after April 22, 1980. The evidence must clearly indicate that the series of transactions commenced before April 22, 1980 but generally where transactions similar to the following take place after April 22, 1980 the Department will, until it is proven otherwise, take the view that the series of transactions commences after April 22, 1980:
• Incorporation of a holding company - Transfer of shares to a holding company - Issuing of high-low preference shares - The payment of a dividend that was not part of the terms of a purchase and sales agreement entered into before April 22, 1980.
3. If there was an agreement entered into before April 22, 1980 but the purchase and sale was contingent on something happening and the contingency was not satisfied until after April 22, 1980 the Department will take the view that the series had not commenced before the contingency occurred.
4. Where subsection 55(2) of the Act does not apply because the series of transactions commenced prior to April 22, 1980, subsection 55(1) of the Act could apply and the Robertson rules would apply to the series of transactions.
This opinion is the same as that given to you verbally in September 1981 and we trust that this information will be of assistance to you.
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© Her Majesty the Queen in Right of Canada, 1981
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© Sa Majesté la Reine du Chef du Canada, 1981
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