28 January 1980 Income Tax Severed Letter

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.

XXXX

A.T. Walsh (613) 593-7295 EC 2969

January 28, 1980

XXXX

This is in reply to your letter of December 4, 1979 concerning the adjusted cost base of common shares in the following hypothetical situation:

1. Pursuant to subsection 85(1) of the income Tax Act, transfer, redeemable convertible preferred shares are received by certain taxpayers. Due to the elected amount and the amount of non-share consideration received on the transfer these preferred shares have a cost of nil pursuant to paragraph 85(1)(g) of the Act.

2. These preferred shares may be redeemed by the company or the shareholder after a certain date for a certain predetermined amount.

3. As an alternative to redemption the preferred share may be converted to common shares through a surrender of the preferred shares at a predetermined value per common share. No consideration other than common shares will be received on the conversion.

You request our opinion as to whether or not the amount paid for the common shares in conjunction with the conversion is added to the cost of the common shares on the assumption that the preferred shares are capital property to the taxpayer and that paragraph 51(b) of the Act applies to deem the common shares to have an adjusted cost base equal to the adjusted cost base of the preferred shares which was nil. You state that paragraph 53(1)(c) of the Act would not apply in this situation.

It is our opinion that if paragraph 53(1) (c) of the Act does not apply to the amount paid for the common shares in conjunction with the conversion there is no other provision in the Act to add the amount paid to the adjusted cost base of the cocoon shares.

We trust this is the information you require.

Yours truly,

Original signe par: A. THIBAULT

for Director Non-Corporate Rulings Division

s. 51 s. 53(1)(c)