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.
Section 85
Preferred shares and section 85 transfer
What is the position of the Department of National Revenue with respect to preferred shares given as consideration in a sale governed by section 85 of the Income Tax Act (Canada)? Is a right of redemption at the option of the holder sufficient? In situations not involving estate freezes should a dividend rate be provided? What about estate freezes?
Department's Position
A right of redemption at the option of the holder will be sufficient.
In situations where the preferred shares are to be held as an investment the Department will normally insist on a dividend rate.
In an estate freeze, the Department prefers that the preferred shares bear a reasonable dividend rate but the absence of one would not, in and by itself, be viewed as reducing the value of the preferred shares to cause paragraph 85(1)(e.2) to be applied.
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© Sa Majesté le Roi du Chef du Canada, 1981
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