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.
This is in reply to your memorandum dated July 17,1981 concerning the amount of the paid-up capital for purposes of paragraph 89(1)(c) of the Income Tax Act (the Act) and the British Columbia Companies Act (BC Act) of a particular class of shares of the above-noted company. XXX Subsection 42(1) of the BC Act provides
"no shares with par value shall be allotted or issued except at a price or for a consideration at least equal to the product of the number of shares allotted or issued multiplied by their par value."
In addition, subsection 43(1) provides that no share shall be issued until it is fully paid.
It is our view that the exchange of the XXX common shares for the XXX preferred shares resulted in an increase in the paid-up capital of XXX in the amount of XXX . Although the company has issued shares that contravene the provisions of the BC Act, there is no provision, to our knowledge, to nullify this exchange. Rather, section 45 thereof provides for compensation for the company from the directors where section 42 is contravened, but then only if legal suit is filed against them to do so. As such, the original exchange must stand for purposes of the Income Tax Act.
The result of the increase in paid-up capital is that subsection 84(1) of the Act will deem the shareholders of XXX to have received a dividend in an amount of XXX even though they may have intended to issue shares with a PUC XXX and a redemption amount of XXX
We do not feel that the arguments made by XXX change our view of the technical application of the law.
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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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