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 a preferred share issued by a Canadian corporation and which has special liquidation rights that are triggered on the winding up, sale (public offering) or amalgamation of the corporation is a short-term preferred shares.
Position TAKEN:
Question of fact. General comments.
Reasons FOR POSITION TAKEN:
XXXXXXXXXX 2000-003920
P. Diguer CGA
Attention: XXXXXXXXXX
October 4, 2000
Dear Sir:
Re: Short Term Preferred Share
This is in reply to your letter dated July 12, 2000 in which you request the Canada Customs & Revenue Agency's (the "Agency") views concerning the application of paragraph (a) of the definition of short-term preferred share (the "Definition") contained in subsection 248(1) of the Income Tax Act (Canada) (the "Act").
Specifically, in your letter you describe a situation where preferred shares are issued by a Canadian corporation and the shares have special liquidation rights that are triggered on the winding up, sale (public offering) or amalgamation of the corporation.
In particular you ask if the Agency would consider that a corporation is "required to redeem, acquire or cancel, in whole or in part" a preferred share at "any time within 5 years from the date of its issue" by virtue of the fact that if a sale or merger occurs in that period of time, the preferred shareholder may opt to have a share redeemed for an amount equal to what it would be entitled to receive on a liquidation of the corporation.
The facts in your letter appear to relate to a factual situation involving specific taxpayers. As explained in Information Circular 70-6R3, it is not this Directorate's practice to comment on proposed transactions involving specific taxpayers other than in the form of an advance income tax ruling. Should your situation involve a specific taxpayer and a completed transaction, you should submit all relevant facts and documentation to the appropriate tax services office for their views. Nevertheless, we offer the following general comments in connection with your request.
Generally, where a shareholder is entitled to have a share redeemed in the event of a sale or merger at any time of the underlying corporation, we would consider that the corporation may be "required to redeem, acquire or cancel, in whole or in part" a preferred share at "any time within 5 years from the date of its issue.
We trust that our comments will be of assistance to you.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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