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.
Dear Sirs:
Re: Convertible Debt Securities - Accrued Interest
This is in reply to your letter of August 9, 1991.
You have requested our opinion as to the income tax consequences where a convertible debt is converted to shares and no amount is paid by the debtor (in cash) on account of interest accrued to the date of conversion.
We are unable to formulate an opinion as to the income tax consequences of the conversion without first having determined and considered all relevant facts so as to permit us to understand what the commercial substance of the transaction is. By your letter to us of May 1, 1991 you postulated 3 possible "solutions" to this question. The possible "solutions" referred to by you were descriptions of 3 possibilities of what in fact may be the commercial substance of the transaction you apparently have under consideration, i.e. the commercial substance of the transaction you have consideration may in fact be:
- (1) that the obligation to pay interest was contingent,
- (2) that the creditor agreed to forgive the accrued interest,
- (3) that the interest was in fact paid by the issue of the shares on the conversion.
As we do not know the details of the transaction under consideration by you, we of course cannot comment upon whether or not there are other possibilities as to the commercial substance of the transaction.
You are asking us to advise you of the tax consequences in a situation that you have under consideration without providing us with all of the pertinent facts (such as, the commercial substance of the transaction, whether there is a legal obligation to pay interest, the relationship of the creditor and the debtor, etc.). It is not possible for us to respond to such an inquiry.
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© Her Majesty the Queen in Right of Canada, 1991
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© Sa Majesté la Reine du Chef du Canada, 1991
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