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 Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Will a share substituted for a prescribed share be a prescribed share ?
Position TAKEN:
Only those shares meeting the conditions for being "prescribed" under regulation 6205 will be prescribed shares under a share exchange.
Reasons FOR POSITION TAKEN:
Amended regulation 6205 (April 1994) provides a broader range for what constitutes a "prescribed" share, however a share exchange for purposes of changing share attributes doesnot qualify the new share as a prescribed share.
933259
XXXXXXXXXX L.Holloway
Attention: XXXXXXXXXX
May 3, 1994
Dear Sirs:
Re: Prescribed Shares - Income Tax Regulation 6205(2) (the "Regulations")
This is in reply to your request for a technical interpretation dated November 5, 1993, concerning Regulation 6205(2) and the definition of prescribed shares. In particular you have stated that in order to facilitate a Section 85 transaction your client's lawyer was instructed to create a "new" class of preferred shares with specific rights and restrictions. When the lawyer completed the transaction he issued, in error, an existing class of preference shares ("old" preference shares), as consideration for the re-purchase of common shares. Currently (twenty months after the original issue) your client wishes to correct the lawyer's error by having a new class of preference shares issued and exchanged for the old.
In your letter you have outlined an actual fact situation related to past transactions and proposed transactions. If the situation described relates to an actual transaction which has already been implemented, the review of such transactions falls within the responsibility of District Taxation Offices and it is the practice of this Department not to comment on such transactions when the identities of the taxpayers are not known. If, however, the situation described relates to an actual proposed transaction, it should be the subject of an advance income tax ruling. However, we can provide you with the following general comments which may be of assistance.
Regulation 6205(2) has recently been amended (see P.C. 1994-618, SOR/94-315, April 21, 1994, copy enclosed) to broaden the circumstances under which shares will be considered to be prescribed shares. Where an issued share meets the definiton of a "prescribed share" found in Regulation 6205(2), a share issued in exchange for the prescribed share will not be considered a prescribed share unless it can meet the conditions provided in the Regulations. The recent amendments to the Regulations do not provide special rules for shares exchanged for prescribed shares in the circumstances you have described.
We trust these comments will be of assistance.
Yours truly,
for Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch
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