Administrative Policy
2022 Ruling 2022-0930901R3 F - Changes to an existing monetization arrangement
A monetization arrangement that was grandfathered from application of the synthetic disposition rules for deferring gain on the shareholding of a holding company (“Holdco A”) in a public company entailed a secured loan from a financial institution (“FI”) to Holdco A and a cash-settlement forward contract between Holdco A and FI. A reference index (replaced as ruled upon in 2021-0880641R3 F) was used in determining both the interest rate under the loan and the reference price under the Forward Agreement. CRA ruled that amendments (represented not to give rise to a novation) to the forward contract to provide for the right to accelerate the maturity date under the forward contract in respect of part of the reference shares would not engage the application of s. 80.6.
Subsection 80.6(1)
Administrative Policy
2021 Ruling 2021-0880641R3 F - Changes to existing monetization arrangements
A monetization arrangement that was grandfathered from application of the synthetic disposition rules for deferring gain on the shareholding of a holding company (“Holdco A”) in a public company entailed a secured loan from a financial institution (“FI”) to Holdco A and a cash-settlement forward agreement between Holdco A and FI. A reference index was used in determining both the interest rate under the loan and the reference price under the Forward Agreement.
As a result of the discontinuance of the reference index, it will be replaced for such purposes by a similar index.
CRA ruled that such substitution would not result in the application of s. 80.6. It also provided a tentative opinion “that there is a reasonable argument that Holdco A could lose the benefit of the transitional relief to the extent that the assignment of the Monetization Agreement would have the effect of novating it.”
| Locations of other summaries | Wordcount | |
|---|---|---|
| Tax Topics - General Concepts - Transitional Provisions and Policies | agreement novation likely would lose grandfathering | 188 |
Subsection 80.6(2)
Paragraph 80.6(2)(c)
Articles
Edward Miller, Matias Milet, "Derivative Forward Agreements and Synthetic Disposition Arrangements", 2013 Conference Report, (Canadian Tax Foundation), pp 10:1-50
Legal form prevails for leases (p. 28)
[P]ursuant to paragraph 80.6(2)(c), subsection 80.6(1) will not apply if the SDA in question is a lease of tangible property or, for civil law purposes, corporeal property. According to the Technical Notes, the SDA Rules are not intended to displace the existing tax rules with respect to such leases. Apparently, and contrary to the general thrust of the synthetic disposition rules, this is an area of the law where legal form and not economic substance will continue to be determinative of tax consequences. [fn 66: See e.g. CRA, Income Tax Technical News no. 21… "…in the absence of sham…a lease is a lease and a sale is a sale."]
Paragraph 80.6(2)(e)
Articles
Edward Miller, Matias Milet, "Derivative Forward Agreements and Synthetic Disposition Arrangements", 2013 Conference Report, (Canadian Tax Foundation), pp 10:1-50
Example of over-one year SDA with disposition within one year (p. 10:38)
[W]here an "American-style" option (an option that can be exercised at any time during its term) is part of an SDA creating a synthetic disposition period of 400 days, but the option holder exercises the option after 180 days, at the outset this was an SDA with a period of more than one year such that subsection 80.6(1) would apply but for the exception in paragraph 80.6(2)(e). That exception would apply here because the property was disposed of as part of the arrangement or at least one component of the arrangement (the option).