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.
APR 3 1985
Bilingual Services & Finance Division
B. Fioravanti Tel.: 995-1787
RE: Investment Certificates Participation Interests
For your information please find attached herewith an exchange of correspondence with XXXX concerning a rather unique method of financing.
As we understand it, the promoter sells a unit for $10,000 which is used by the corporation to acquire an investment certificate worth $10,000 in five years. The certificate is acquired for, say $5,600, and is registered in the investor's name. For the remaining $4,400, which the corporation retains, the investor receives a participation interest in the profits of the corporation until the earlier of the year 2,000 and the sale of the assets. XXXX has advised us that these units have been on sale for a month or two.
In these circumstances we are precluded from issuing an advance ruling or an opinion as to the tax implications, however, we did mention some of our concerns. These are:
1) Although there are differences, it is somewhat similar to the defeasance techniques used by some corporations to arrange financing. In this regard, you may wish to refer to an article by Scace and Quigly C.T.J., Vol. 32, No. 4 at page 689.
2) It appears that the corporation may attempt to deduct the participation payments paid to the investors from its income which is contrary to our position on participation payments.
3) The tax treatment of the investment certificate holders should follow the guideline set out in IT's 114 and 396.
This matter is brought to your attention for whatever action you may wish to take.
Chief Finance & Leasing Section Bilingual Services & Finance Division Corporate Rulings Directorate Legislation Branch
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, 1985
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, 1985
Email this Content