The Joint Committee provides extensive submissions on the September 16, 2016 Technical Amendments Package

Interpretive points made in the November 15 submission of the Joint Committee to Finance on the September 16, 2016 draft technical amendments include:

• Ss. 87(8.4) and (8.5) provide a tax deferral only for shares of taxable Canadian corporations and, thus, do not extend to shares of a non-resident corporation or of a partnership or trust which are TCP.
• Similarly to draft s. 91(4.5), the exceptions in ss. 91(4.6)(b) and 126(4.12)(b) also should be revised to encompass any partnership in the direct ownership chain (rather than just the operating partnership) that is treated as a corporation under the relevant foreign law.
• The triggering event for a stub period under s. 91(1.2) should be a change in the participating percentage (PP) rather than in the surplus entitlement percentage (SEP). For example, all the income of the FA in question might be allocable for the year to preferred shares (i.e., the preferred shareholder’s PP is 100%) so that it would not be appropriate to trigger the rule based on a change in the year of the SEP of a holder of the FA’s common shares.
• The de minimis exception in s. 91(1.1)(b) does not apply to a large number of trivial SEP changes (e.g., where there is an employee stock option plan on the shares of the FA) if there is also a larger SEP change in the year, even if this does not occur as part of the same series of transactions.
• The unavailability of s. 91(1.5) (allowing a purchaser to have a stub period year end) to an arm’s length purchaser from a non-resident can generate an inappropriate result where the s. 95(2)(f.1) carve-out rule is unavailable to the purchaser (in respect of whom the FA might already have been an FA).
• S. 212.3(2)(a) is being expanded to investments other than by a CRIC in its own FA. The scope is overly broad, for example, where a US-resident individual owns USCo which owns CaSub, the FAD rules will apply where a CCPC owned by his Canadian brother invests in an FA of that CCPC.
• A late-filing dividend under s. 212.3(7)(d) is not eligible for the dividend substitution election under s. 212.3(3).
• The formula in s. 212.3(9)(b)(i) can operate to under-reinstate PUC.
• The condition in s. 219.1(3)(c) is too restrictive because any amount of previous reinstatement under s. 212.3(9) would preclude a reinstatement under s. 219.1(4).
• The proposed addition of Reg. 6204(1)(b)(iv) seems to imply that a convertible voting share would not be a prescribed share if it were reasonable to consider that the conversion right would be exercised within the two-year period.

Neal Armstrong. Summaries of Joint Committee, Submission letter entitled “Technical Amendments Package of September 16, 2016" dated 15 November 2016 under s. 87(8.4), s. 90(6.1), s. 91(4.6)(b), s. 91(1.2), s. 91(1.1). s. 91(1.5), s. 212.3(2), s. 212.3(7). s. 212.3(18), s. 212.3(9)(b), s. 219.1(3)(c). s. 248(1) – derivative forward agreement, Reg. 6204(1)(b).