Short-Term Preferred Share

Administrative Policy

28 June 2001 External T.I. 2001-0073205 - SUBSTANTIAL ISSUER BID

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.

4 October 2000 External T.I. 2000-0039205 - SPECIAL LIQUIDATION RIGHT TERM PREF. SHARES

"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'."

93 C.R. - Q. 10

A share is considered to be "convertible" or "exchangeable" for purposes of paragraph (b) where either the holder or the issuing corporation has the option to convert or exchange.

2 November 89 T.I. (April 90 Access Letter, ¶1191)

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.


Sugg, "Preferred Share Review: Anomalies and Traps for the Unwary", 1992 Conference Report, c.22.

Paragraph (a)

Subparagraph (a)(i)

Administrative Policy

30 March 2010 Internal T.I. 2010-0354391I7 F - P.VI.1:Rachat à l'enchère hollandaise modifiée

deemed dividends on redemption of common shares tendered under modified Dutch auction came within (a)(i) and (e)(i) FMV exception

A Canadian public corporation (the “Corporation") purchased for cancellation common shares that were tendered to it under an issuer bid under which the purchase price was established pursuant a modified Dutch auction. Thus, at the expiry of its offer, the Corporation selected the lowest purchase price for the tendered common shares that allowed it to purchase the specified aggregate dollar value of shares, with shares deposited at or below the purchase price being redeemed at that purchase price.

After initially filing its return without reporting Pt VI.1 tax, the Corporation then filed an amended income tax return for in which it took the position that the common shares redeemed were short-term preferred shares ("STPS"), so that there was Part VI.1 tax payable, and a deduction generated under s. 110(1)(k).

In finding that instead there was no Part VI.1 tax payable, the Directorate stated:

[T]he common shares … were neither "STPSs" nor "TPSs" … . [B]y virtue of the exceptions in subparagraphs (a)(i) and (e)(i) of the definition of STPS and paragraph (f) of the definition of TPS in subsection 248(1), the Corporation’s public offer to purchase its shares for cancellation under a modified Dutch auction and the agreements entered into on XXXXXXXX with certain shareholders who tendered their shares in response to the offer did not, in themselves, result in the Corporation’s common shares becoming STPSs or TPSs. Furthermore, we are of the view that the purchase price per share … did not exceed the FMV of the Corporation's common shares at the time these agreements were entered into or at the time the shares were acquired.

Locations of other summaries Wordcount
Tax Topics - General Concepts - Fair Market Value - Shares purchase price established under modified Dutch auction represented the tendered shares’ FMV 74