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.
PRINCIPAL ISSUE SHEET - QUESTION PAGE 27 FOR THE 1991 CANADIAN TAX FOUNDATION ROUND TABLE
Issue
In responding to this query it was assumed that at the time the preferred shares were issued, the holder had the option of converting them into common shares at a preset ratio, or they could be redeemed for a preset amount of cash. The question then was whether a subsequent conversion of the preferred shares to common shares at a time when the value of the common share shad increased to a level higher than the amount for which the preferred shares could be redeemed, would trigger a subsection 15(1) benefit to the shareholder.
Position
If the conversion ratio was originally set at fair market value, it was our view that no 15(1) benefit would be conferred on the subsequent conversion of the preferred shares into common shares. However, if the original conversion ratio was not set at fair market value, then it is possible that 15(1) could apply. For instance, if a taxpayer paid $100 to acquire preferred shares that were immediately convertible into common shares having a fair market value of $150, it is possible that 15(1) could apply, depending of the facts in the particular circumstances.
This is the same question and response given for Q.23 of the Vancouver D.O. Round Table - September, 1991.
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 1991
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 1991
Email this Content