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18 April 2002 Internal T.I. 2002-0118827 F- DEBENTURES CONVERTIBLES-- summary under Paragraph 20(1)(f) Summary Under Tax Topics- Income Tax Act- Section 20- Subsection 20(1)- Paragraph 20(1)(f) no s. 20(1)(f)(ii) deduction on conversion of convertible debentures notwithstanding attempt in resolution to fix the issued shares’ stated capital at their market value The corporation, on the conversion by holders of convertible debentures that it had previously issued, passed a resolution stipulating that the stated capital of the shares issued by it on the conversion was equal to the shares’ market value at that time, and took a deduction under s. 20(1)(f)(ii) equal to ¾ of the excess of such market value over the face value of the converted debentures. ...

18 April 2002 Internal T.I. 2002-0118827 F- DEBENTURES CONVERTIBLES-- summary under Subsection 18(9.1) Summary Under Tax Topics- Income Tax Act- Section 18- Subsection 18(9.1) straight-line or present value method may be used in amortizing premium, and must relate to interest Regarding the potential application of s. 18(9.1) to a premium paid on the early cash redemption of convertible debentures, the Directorate indicated: “if part of the penalty relates to something other than interest, such as debt administration costs, it would not be deductible pursuant to subsection 18(9.1)” – although that did not appear to be the case here regarding s. 18(9.1) covering the amount of a penalty or bonus to the extent that it does not exceed the amount of the total interest that would otherwise have been payable but for the reduction or repayment, the “word ‘value’ in subsection 18(9.1) may therefore be interpreted as meaning the total value and not the present value of future interest payable.” ...

. … Thus, even if the deceased annuitant did not actually receive an amount representing the value of his RRIF, by the effect of the [s. 146.3(6)] deeming rule, the Act leads us to consider this to be so. ...

. … Monsieur was in fact released from any future obligation to pay support under the written agreement, since Madame was obliged to reimburse him for any subsequent support payments. ...

". Words and Phrases apply ...

. … Consequently, you cannot characterize this amount as a non-deductible dividend to the corporation. ...

CRA stated: [P]aragraph 94(2)(t) … applies to expunge the contribution after the time of the sale (i.e., from the time of the sale forward, the contribution is considered to have never occurred). ...

., were subject to Part XIII tax under s. 212(1)(c) Similarly, “the transfer of the Trust’s assets to ULC … was for the benefit of Y and Z,” and s. 107(2.1) thereby applied to deem them to be disposed of for fair market value proceeds. ...

If Y and Z argued that s. 104(13) did not apply to them because no amount was payable to them in the year, CRA would apply s. 56(2) or (alternatively) s. 105(1) to include the dividend amounts in their income – but without any s. 104(6) deduction to the Trust. ...

IV(6) – and, similarly, LLC1 Itself would be considered to be deriving such income as a qualifying person if it had chosen to be treated as a corporation. ...