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 the reference to "10% of the issued and outstanding shares of that class" in Regulation 6201(2)(c) refers to the "separate class of shares" under subsection 84(3) such that the deeming of a dividend under subsection 84(3) will deny an SFI the benefit of an exemption, under Regulation 6201(2), from the term preferred share rules.
Position TAKEN:
No
Reasons FOR POSITION TAKEN:
The words "shares of that class" as they appear in subparagraph 6201(2)(c) of the Regulations is not a reference to shares of the deemed separate class under 84(3). To take a contrary position would result in a situation in which shares would not be prescribed when ordinary dividends are received but would be when deemed dividends are received on a redemption. In our view, this is not an appropriate result.
XXXXXXXXXX 2000-003903
P. Diguer
Attention: XXXXXXXXXX
January 9, 2001
Dear Sir:
Re: Interaction of subsection 84(3) and paragraph 6201(2)(c)
This is in reply to your facsimile dated July 24, 2000, in which you requested our views regarding the interaction between subsection 84(3) of the Income Tax Act (Canada) (the "Act") and paragraph 6201(2)(c) of the Income Tax Regulations (the "Regulations") with respect to a redemption of shares of a corporation that are listed on a prescribed exchange in Canada that were held by a specified financial institution ("SFI").
Specifically, in your letter you describe a situation where an SFI together with non-arm's length corporations, own 10% or 1ess of the shares of a corporation that are listed on a prescribed stock exchange in Canada such that these shares would generally be prescribed shares within the meaning of subsection 6201(2) of the Regulations. An ordinary dividend paid on such shares would generally be deductible from the income of the SFI in computing its taxable income. However, if the dividend is deemed to be paid as a result of a redemption of the shares held by the SFI you question whether the dividends would be deductible since subsection 84(3) deems a dividend to have been paid and received on "a separate class of shares comprising the shares so redeemed ...".
If the term "class" in subsection 6201(2) of the Regulations is interpreted as referring to the deemed class of shares mentioned in subsection 84(3) a deemed dividend received on the redemption of shares held by the SFI would not be deductible since it would be received in respect of 100% of the deemed class (assuming only the shares held by the SFI are redeemed).
In our view, the words "shares of that class" as they appear in subparagraph 6201(2)(c) of the Regulations are not a reference to shares of the separate class but rather to the actual class of the capital stock of a corporation that is listed on a prescribed exchange.
We trust 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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