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.