14 November 1996 External T.I. 9635605 - DISPOSITION OF SHARES ON MERGER OF NON-RESIDENTS

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:

Whether merger of two non-resident corporations causes Canadian-resident EPSP shareholder to "dispose" of shares and incur a capital gain or loss.

Position:

Question of fact - go to TSO.

Reasons: N/A.

XXXXXXXXXX							963560

Attention: XXXXXXXXXX

November 14, 1996

Re: Disposition of Shares on Merger

This is in reply to your letter of October 24, 1996, in which you ask us to confirm the tax consequences to an employees profit sharing plan ("EPSP") and its participants resulting from the merger of two non-resident corporations. The EPSP was a shareholder of one of the merged corporations and as a result of the merger the EPSP's common shares were converted to common shares of a third non-resident corporation.

On the assumption that the share is a capital property, the issue you wish resolved is whether the conversion of the common share caused by the merger of the two non-resident corporations was a "disposition" so that the EPSP will have incurred a capital gain or loss. Any such capital gain or loss is required, as you have noted, to be allocated in the year of disposition to the participants of the EPSP pursuant to subparagraph 144(1)(b)(iii) of the Income Tax Act (the "Act"). Capital gains and losses are deemed, by subsection 144(4) of the Act, to be capital gains and losses of the employee to whom they are allocated in the year.

Your question relates to an actual fact situation and past transaction the tax consequences of which can only be confirmed by the tax services office. Although you indicate that various employees have received conflicting telephone advice from the Department, we suggest that your client submit a written request to its tax services office. Should that office require our assistance we will then respond to them directly. You may wish to provide the tax services office with your analysis on the issue identified above, namely, whether the merger of the two non-resident corporations which resulted in the "conversion" of the share or which caused one share to "cease to exist" and the other share to be issued, caused a "disposition" of the original share for the purposes of the Act. We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate