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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Does an agreement by shareholders' resolution to reduce stated capital on common shares that are not term preferred shares cause 84(4.2) to apply ?
Position TAKEN:
NO, unless the bank have significant shares to cause the shareholders resolution to reduce the puc.
Reasons FOR POSITION TAKEN:
Shares are not term preferred shares and shareholders resolution to reduce puc does not, in and by itself, cause them to be term preferred shares, unless the specified financial institution has enough voting shares.
941992
XXXXXXXXXX C. Tremblay
Attention: XXXXXXXXXX
September 14, 1994
Dear Sirs:
Re: Section 84(4.2) of the Income Tax Act (the "Act")
This is in reply to your letter of August 5, 1994, wherein you requested a technical interpretation with respect to the definition of "term preferred share" ("TPS") in subsection 248 of the Act and the application of subsection 84(4.2) of the Act in the situation described.
Your letter appears to refer to a factual situation involving a specific taxpayer, accordingly, your questions should be directed to your District Taxation Office which has the responsibility of determining the tax consequences of completed transactions and their implications to the specific taxpayers. However, we are prepared to offer the following general comments.
Where a corporation has only one class of common shares outstanding that are not TPS, in our view, such shares would generally not become TPS solely as a result of a shareholders' resolution to reduce the stated capital of the common shares in order to distribute an amount to the shareholders.
If, however, a specified financial institution can cause the shareholders resolution to reduce the stated capital of a class of shares, subsection 84(4.2) of the Act may apply.
The above comments are only expressions of opinion on the application of the Income Tax Act to the situation given and as such should not be construed as an advance income tax ruling, nor are they binding on the Department.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Policy and Legislation Branch
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