CRA finds that warrants distributed under s. 84(2) have a cost equal to their (estimated) FMV

A Canadian public corporation, which holds some foreign exploration companies indirectly through a Canadian holdco which it mostly has capitalized with debt, will convert a portion of that debt into common shares and common share purchase warrants, and then make a paid-up capital distribution of the shares and warrants to its shareholders under s. 84(2) – but with only the distributed common shares being subsequently listed.

Although no section states this, CRA considers that common shares received on a s. 84(2) distribution have a cost equal to their fair market value at that time. Not surprisingly, CRA extended this position to the cost of the warrants. More surprisingly, the ruling letter boldly states what will be the approximate respective FMVs of the distributed shares and warrants.

Neal Armstrong. Summary of 2014 Ruling 2014-0537161R3 under s. 84(2).