Short-Term Preferred Share

Where a corporation proceeds with a substantial issuer bid at a price that is at a premium over the previous trading price of its shares on a stock exchange, the shares will not necessarily become taxable preferred shares or short-term preferred shares as a result of the bid. Although the value of a share on the stock exchange is an indication of its fair market value, the Agency feels that all the circumstances surrounding each particular situation must be examined to make this determination. Furthermore, the definitions make specific reference to alternative valuation methods employing assets and/or earnings of the corporation.

"Generally, where a shareholder is entitled to have a share redeemed in the event of a sale or merger at any time of the underlying corporation, we would consider that the corporation may be 'required to redeem, acquire or cancel, in whole or in part' a preferred share at 'any time within five years from the date of its issue'."

An ESOP or an EVCP must require that the corporation redeem a shareholder's shares in certain circumstances for an amount determined in accordance with the provisions of the Employee's Investment Act (B.C.). To the extent that the retraction price does not provide for a minority discount, it could exceed the fair market value of the share and therefore be outside of the exception.