CRA finds that corporate PUC and capital surplus flowed through on a cross-border continuance

A non-resident corporation governed by a non-resident jurisdiction’s corporate law had issued share capital based only on the “nominal value” (perhaps better translated as “par value”) of its common shares, but with a share premium account from share issuances. It became resident in Canada through a change in its central management and control, and then continued under a provincial companies statute, with the issued share capital account and share premium account being relabelled as stated capital and contributed surplus, respectively, on the continuance. It then passed a resolution converting the newly-styled capital surplus account into further stated capital – and got a ruling that this did not generate a s. 84(1) deemed dividend.

This ruling letter is supportive of a view that paid-up capital (and capital surplus), however precisely labelled under the applicable corporate statute, maintain their status on various types of corporate migrations, such as a continuance, or perhaps a conversion of a C-Corp to an LLC (with the right drafting of the LLC agreement), notwithstanding that the treatment (and labelling) of the capital and surplus amounts under each statute will often differ to some extent.

Neal Armstrong. Summary of 2015-0584151R3 under s. 84(1).