3 March 1995 External T.I. 9424575 - WHETHER SPECIAL WARRANTS ARE OPTIONS

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.

942457
XXXXXXXXXXA.A. Cameron

Attention: XXXXXXXXXX

March 3, 1995

Dear Sirs:

Re: Special Warrants

This is in reply to your letter of September 22, 1994 wherein you requested that we reconsider an opinion expressed in our letter to you of September 6, 1994 (the "Letter") concerning the application of the provisions of subsection 49(3) of the Income Tax Act (the "Act") in the context of a hypothetical situation. We apologize for the delay in our response.

The relevant portion of the hypothetical situation in question was described in the Letter, essentially, as follows:

-A "principal-business corporation" (a "PBC"), within the meaning assigned that phrase in subsection 66(15) of the Act, would offer "flow-through" special warrants ("Special Warrants") to members of the public whereby each Special Warrant would be acquired for a fixed subscription price ("Subscription Price") and would entitle the holder thereof to acquire one common share of the PBC, at no additional cost, on or before a specified expiry time.

-Any Special Warrants not exercised prior to the specified expiry time would be deemed to have been exercised at the expiry time without any further action on the part of the holder. In other words, once a subscriber has tendered the Subscription Price for each Special Warrant acquired that subscriber will subsequently receive one common share for each Special Warrant upon the actual or deemed exercise of the Special Warrant.

The opinion which you have asked that we reconsider was on page three of the Letter and indicated as follows:

In our opinion, in a situation involving a "deemed" or mandatory exercise of the Special Warrant, it would be unlikely that a Special Warrant would constitute an "option to acquire property" for the purposes of subsection 49(3) of the Act.

In particular, you have requested that we confirm, essentially, that a Special Warrant will be treated as an "option" for the purposes of subsection 49(3) of the Act.

Our Comments

As stated in the Letter and discussed in our telephone conversations, we are unable to provide the requested confirmation since the final determination would have to be made with reference to all of the relevant facts of a particular situation involving Special Warrants, e.g., with reference to the documents, agreements, etc., concerning the offering of the Special Warrants and the related issuance of common shares.

As discussed in our telephone conversations, if you have a concern with regard to contemplated transactions involving Special Warrants we would be pleased to consider same in the context of a request for an advance income tax ruling. On the other hand, if you have a concern with regard to completed transactions involving Special Warrants such matter should be referred to the relevant Tax Services Office.

If you have any further questions please contact the writer.

Yours truly,

for Director
Manufacturing Industries,
Partnerships and Trusts Division
Rulings Directorate
Policy and Legislation Branch