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.
RULINGS DIRECTORATE
CORRESPONDENCE SUMMARY
Principal Issues:
Whether Department's position re application of section 7 to forward-participating shares is meant to also apply to all types of convertible preferred shares.
Position TAKEN:
Yes - but clarification required.
Reasons FOR POSITION TAKEN:
It was never intended that our publicly announced position applied only to forward-participating shares; rationale for section 7 applying to these types of shares extends equally to convertible preferred shares. (Court case already holds that section 7 applies to convertible debentures.)
March 11, 1994
Review Committee Rulings Directorate (613) 957-8953
940535
TEXT OF PUBLIC ANNOUNCEMENT
The following is the text of a public announcement which has been approved for release by Mr. Lefebvre.
SUBJECT: CLARIFICATION OF REVENUE CANADA POSITION
RE: SECTION 7 AND CONVERTIBLE PREFERRED SHARES
In January 1992, Revenue Canada publicly announced in CT NEWS ITEM #43 its view that subsection 7(1) applies on the conversion or sale of a type of share referred to as a forward participating share.
The announcement was intended to convey Revenue Canada's view that where employee compensation plans involve convertible preferred shares, subsection 7(1) will be applicable when the preferred shares are sold or converted to common shares. However, since this view was not made clear in the above-mentioned announcement, it will only be applied prospectively for plans involving shares other than forward participating shares.
Therefore, with respect to plans in place on or before March 31, 1994, the conversion or sale of convertible preferred shares issued before July 1, 1994 will not give rise to an employment benefit.
N.B. If the public announcement by means of CT Online release occurs after March 31, 1994, the date by which the plan must be in place will be postponed accordingly as will the date for share issuance.
Prepared by: P. Spice
March 11, 1994
(Text of announcement approved by Review Committee in meeting of March 31, 1994.)