Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: Cost Amount of exchanged shares held in a registered plan.
Position: Question of Fact
Reasons: General comments provided.
XXXXXXXXXX
2002-013282
Karen Power, CA
(613) 957-8953
May 17, 2002
Dear XXXXXXXXXX:
Re: Reorganization of Shares held in a Registered Plan
We are writing in reply to your facsimile of March 26, 2002 which was addressed to Martin Kirk and forwarded to us for reply on April 3, 2002, in which you requested our comments on the effects that a corporate takeover would have on the cost amount of shares held in a registered plan.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R4, Advance Income Tax Rulings, dated January 29, 2001. Where the particular transactions are completed, the inquiry should be addressed to the relevant tax services office. Although an advance income tax ruling will not be issued on this matter, we have provided you with the following comments.
The term "cost amount" is defined in the Income Tax Act (the "Act") and, in general, means the cost of the property for tax purposes at the time of the property's acquisition. In most cases, shares held in a registered plan have a cost amount that is equal to the actual amount laid out to acquire the shares, plus any brokerage fees or any other costs incurred that were incidental to the acquisition of the shares.
Where shares held in a registered plan have been exchanged for new shares in the course of a reorganization of capital or in the course of a corporate takeover, the determination of the cost amount of the new shares is a question of fact. The cost amount of the exchanged shares would depend in part, on whether any of the numerous tax-free rollover provisions of the Act (i.e. sections 51, 85, 85.1, 86, 87) would apply to the particular exchange. Where none of the tax-free rollover provisions would apply, the acquisition of the new shares would be at their fair market value on the date of acquisition. This fair market value would be the cost amount of the new shares. For purposes of the Act, the cost amount of exchanged shares held within a registered plan would be computed on the same basis as shares held in a non-registered account.
We trust our comments will be of assistance to you. These comments are provided in accordance with the practice outlined in paragraph 22 of Information Circular 70-6R4.
Yours truly,
Mickey Sarazin, CA
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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