Section 143.3

Subsection 143.3(2) - Options — limitation


Chris Falk, Stefanie Morand, Brian O'Neill, "Is there Always Certainty Regarding Tax Basis? – Limitations on Expenditures Pursuant to Sections 143.3 and 143.4", 2014 Conference Report, (Canadian Tax Foundation),14:1-36

Denial of cost of property acquired with options (p. 14:7)

[O]ne of the effects of section 143.3 is that the issuer will not have any cost for property it receives as consideration for granting an option to acquire an interest in the issuer.

Avoidance for issuing options for cash (p.14:11)

On the premise that section 143.3 should not extend to the issuance of securities for cash, and subject to the possible application of…GAAR…, where options (including section 7 securities) would otherwise be issued for property, consideration could be given to issuing such options for cash and using the cash to purchase the property that was otherwise to be paid for such options.

Subsection 143.3(3) - Corporate shares — limitation

Administrative Policy

2017 Ruling 2017-0699201R3 - Cross-border Butterfly

s. 143.3(3) inapplicable on a 4-party exchange

CRA ruled on a cross-border butterfly which entailed assets of the “Transferred Business” being transferred indirectly to a wholly-owned non-resident subsidiary (Foreign Spinco) of a non-resident public company (Foreign Parentco) or to a wholly-owned non-resident subsidiary of Foreign Spinco (Foreign Spinco Sub) – with a view to the shares of Foreign Spinco being dividended out to the shareholders of Foreign Parentco at the transactions’ completion. One of the indirect assets of Foreign Parentco was a Canadian corporation (DC) which held the Canadian portions of both the Transferred Business and the “Retained Business.”

Following a s. 86 exchange by Foreign Parentco of its old common shares of DC for new common shares and “DC Special Shares”, and before the butterfly distribution to a Canadian subsidiary of Foreign Spinco Sub (TCo), there is a four-party exchange under which Foreign Parentco transfers its DC Special Shares to a newly-formed Canadian sub of Foreign Spinco Sub (TCo), TCo issues common shares to Foreign Spinco Sub, Foreign Spinco Sub issues shares to Foreign Spinco and Foreign Spinco issues shares to Foreign Parentco. CRA ruled:

[T]he aggregate cost to TCo of the DC Special Shares that TCo acquired from Foreign Parentco on the Four-Party Share Exchange will be equal to the aggregate FMV at that time of those DC Special Shares. For greater certainty, subsection 143.3(3) will not apply to reduce that aggregate cost.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Distribution cross-border butterfly with 4-party exchange and preceding distribution of DC to foreign parent to qualify as permitted exchange/rental property valued at nil/post-butterfly equaling cash payment 1140
Tax Topics - Income Tax Act - Section 55 - Subsection 55(1) - Permitted Exchange - Paragraph (b) cross-border butterfly including preliminary transfer of DC to foreing parent to come within “permitted exchange” 444
Tax Topics - Income Tax Act - Section 54 - Adjusted Cost Base full cost of property acquired under 4-party exchange 222
Tax Topics - Income Tax Act - Section 212.1 - Subsection 212.1(1.1) - Paragraph 212.1(1.1)(b) application on 4-party exchange 291

Paragraph 143.3(3)(a)

Administrative Policy

2009 Ruling 2008-0300102R3 - Deductibility of interest

interest satisfied in shares

ACO, a public corporation, issues Notes the interest on which may at ACO's option be satisfied by issuing preferred shares with an aggregate redemption value and stated capital equal to the amount of the interest otherwise payable in cash.

Opinion that proposed s. 143.3(3) will not apply to re-determine the amount of interest otherwise deductible by ACO.


Chris Falk, Stefanie Morand, Brian O'Neill, "Is there Always Certainty Regarding Tax Basis? – Limitations on Expenditures Pursuant to Sections 143.3 and 143.4", 2014 Conference Report, (Canadian Tax Foundation),14:1-36

Whether share issuance for debt cancellation entails ‘property transferred…to" the corporation (p. 9)

In the context of subsections 143.3(3) and (4), the question is whether property is "transferred to" or services are "provided to" the taxpayer for issuing the share (or interest) in circumstances in which a taxpayer issues a share (or interest) in payment of a debt obligation. While the right to payment should be "property" within the meaning of the definition in subsection 248(1), and while the extinguishment of the right should constitute a "disposition" by the holder, the concern arises in the context of subsections 143.3(3) and (4) since the right may not be transferred to the issuer on the extinguishment as required by these subsections.

…[A]s noted by one commentator: "as a matter of law (real law, not tax law), where a presently payable debt is satisfied by the issuance of fully paid shares of the debtor having the same nominal amount, the issue of shares is treated as if it had been made for cash in the same amount". [fn 49: Robert Couzin, "Debt Restructuring," Corporate Management Tax Conference 1986… ] Similarly, as another commentator stated after reviewing U.K. and Canadian jurisprudence:…

[T]he loan proceeds received by the debtor may be considered advance receipt of the cash subscription price. [fn 50: Wertschek, "Application of a Corporation's Indebtedness to the Issue Price of its Shares Constitutes Full Payment of the Debt," Corporate Structures and Groups, 1992, pp. 16-20.]

Rulings on securities issued to pay principal or interest (p. 10)

CRA has ruled that subsections 143.3(3) and (4)… would not apply to re-determine the relevant amounts in the context of the issuance of trust units in repayment of principal-and-preferred shares in payment of interest [fn 55: …2008-0300101R3, 2008-0300102R3 and 2009-0350481R3… .]…It is…unclear whether the CRA's earlier comment in the context of rebates (i.e., the CRA's view that subsection 143.3(3) would apply such that rebates automatically invested at the issuer's option in common shares would not be deductible by the issuer) continues to reflect the view of the CRA and, if so, how it is to be reconciled with the subsequent rulings [fn 56: … 2006-0176321R3… .]

No express carve-out for money transferred to corporation (pp. 10-11)

Section 143.3 applies to limit the cost of "property" acquired by the taxpayer, and does not include an express carve-out for money. …

It may be that the Department of Finance determined that a clarifying rule was unnecessary since the general scheme of the Act suggests that money does not have a cost amount and that a taxpayer does not realize a gain or loss on the disposition of money, other than in the context of foreign currency fluctuations. [fn 62: That does not mean, however, that money could not have a "cost", such that a clarifying rule would have been welcome.] By way of example:

  • paragraph 88(l)(d) refers to "the cost amount to the subsidiary of the property immediately before the winding-up, plus the amount of any money of the subsidiary on hand immediately before the winding-up";…[also citing, ss. 88(1)(d), 87(9), 98(3)(a)(ii), 89(1) – GRIP. 108(1) – cost amount, 132(4)].

Paragraph 143.3(3)(b)

Administrative Policy

29 November 2016 CTF Roundtable Q. 3, 2016-0670201C6 - Agnico-Eagle Mines Decision

application to coversion of debenture

CRA rejected the suggestion that Agnico-Eagle could support the realization of a capital loss under s. 39(2) when a U.S.-dollar denominated debenture is converted into shares, stating that a loss from appreciation in the shares of the issuer is not an FX loss described in s. 39(2). CRA went on to indicate that in a similar future case, CRA would rely on s. 143.3(3)(b) and consider that, on conversion of a convertible debenture, the holder had actually exercised an option for the purposes of that provision, so that the amount paid for the shares under the terms of the options would be the cash value paid for the debenture.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 39 - Subsection 39(2) Agnico-Eagle analysis rejected 139

15 April 2009 Internal T.I. 2008-0301171I7 F - 7(3)b) vs 143.3(3)

s. 143.3(3)(b) inapplicable given prior application of s. 7(3)(b)

Pubco (a Canadian public corporation) issues stock options (the “Options”) to certain employees with an exercise price not less than the FMV of the shares on the date of grant. Pubco accounts for the transactions surrounding the granting and exercise of an Option in accordance with Section 3870 of the CICA Handbook, such that it records a "stock-based compensation expense" when an Option is granted and when a share is issued on Option exercise. After indicating that s. 7(3)(b) precluded the recognition of such expenses under the Act, CRA stated:

[P]aragraph 143.3(3)(b) would not be applicable in this case in computing Pubco's income for a particular taxation year in which an Option was granted or exercised since no expense that would include an amount by reason of the granting of an Option or the issuance of a share of its capital stock would be deductible in computing its income for income tax purposes for that particular taxation year.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 7 - Subsection 7(3) - Paragraph 7(3)(b) recognition of compensation expense under GAAP on granting and then exercise of conventional Pubco options precluded by s. 7(3)(b) and notwithstanding Alcatel 160

Subsection 143.3(5) - Clarification

Paragraph 143.3(5)(b)


Chris Falk, Stefanie Morand, Brian O'Neill, "Is there Always Certainty Regarding Tax Basis? – Limitations on Expenditures Pursuant to Sections 143.3 and 143.4", 2014 Conference Report, (Canadian Tax Foundation),14:1-36

Excess is of cost over FMV (p. 6)

Implicit in the [Finance] technical note statements is the assumption that, for purposes of paragraph 143.3(5)(b), the "amount determined to be an excess" under subsections 143.3(3) and (4) is the amount, if any, by which the expenditure as otherwise determined (as opposed, necessarily, to the FMV of the share) exceeds the FMV of the property transferred or issued to, or the services provided to, the issuer for the share (or interest).