8 April 1992 Administrative Letter 920302A F - Whether Sale Redeems & Acquires Includes a Deemed Disposition

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.

Subject: T5008 Security Transactions Reporting

This is in reply to your memorandum of January 24, 1991 wherein you request our views whether Regulations 230(2) and (3) require the reporting of deemed dispositions.  More specifically you inquire whether the words "sale" and "redeems" in Regulation 230(2) and (3) respectively include a "deemed disposition".

The definition in Regulation 230(1) of the word "sale" is not all inclusive so we must use its ordinary, common meaning.  The dictionary, Words and Phrases Legally Defined (Canadian Edition) defines "sale" as:

The word "sale" primarily means a contract whereby the absolute ownership of property is transferred from one person to another for a sum of money.

"Disposition" of property is defined in paragraph 54(h).  Please note that a  "sale" is a narrower concept than a "disposition".

In the case of a deemed disposition, ownership of property is not handed over to another person for consideration.  Consequently a deemed disposition can not be considered a "sale" of securities for purposes of Regulation 230(2).    Document Disclosed Pursuant to The Access To Information Act

The word "redeems" is not defined in the Act so we must again look to the common, ordinary meaning.  The dictionary Words and Phrases Legally Defined (Canadian edition) defines "redeem" as:

The word redeem has the meaning "buy back".

In the case of a deemed disposition even where it is followed by a deemed reacquisition there is no "buy back" of a security in that a taxpayer can not buy or purchase a security from himself.  Consequently, in a case where there is a deemed disposition even if its followed by a deemed reacquisition, the issuer, for purposes of Regulation 230(3), would not be considered to have redeemed a security.

Regulation 230(3) also refers to a person who acquires or cancels any securities.  As regards "cancels" a deemed disposition of a security would not be considered a cancellation of the security for purposes of Regulation 230(3).  However, the courts have held that the word "acquired" used in paragraph 20(5)(e) of the former Act (subsection 13(5) of the current Act), is the direct opposite of "disposed of" or "disposition".  See Olympia and York Developments Ltd. v. The Queen, 80 DTC 6184.  Consequently, on a deemed acquisition by a trust or corporation of its securities, the trust or corporation would for purposes of Regulation 230(3) be considered to have acquired securities it issued.  Please note that the application of Regulation 230(3) is restricted to situations where a corporation or trust acquires or is deemed to acquire securities it issued.  For example, a deemed acquisition, pursuant to subsection 70(6) of the Act, by a spouse trust of property deemed to have been disposed of by the deceased taxpayer immediately before his death is unlikely to include securities issued by the spouse trust.  The spouse trust described in subsection 70(6) of the Act would come into existence after the death of the taxpayer in that it is created by the taxpayer's will. Therefore, Regulation 230(3) could not apply in respect of a subsection 70(6) deemed acquisition.

Although a deemed disposition and reacquisition by a trust or corporation of securities issued by it, is required to be reported in an information return pursuant to Regulation 230(3) enforcement of this requirement is not likely to improve compliance.  Deemed dispositions are required to be reported in a taxpayer's return of income and in our view, any taxpayer who does not do so is not likely to report it on an information return.

We trust this will be of assistance to you.

E. Wheelerfor DirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch