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:
amendment to articles of preferred shares
Position:
loss of grandfathered status
Reasons:
meets words of paragraph (e)
1995 CTF Conference
Paragraph (e) of the Definition of "Taxable Preferred Shares"
The Rulings Directorate received a request to rule that an amendment to the articles of a corporation which would allow it to pay a stock dividend in lieu of cash was not enough of a change to the dividend entitlement of the shares as to warrant the loss of grandfathered status for purposes of paragraph (e) of the definition of "taxable preferred shares". An advance income tax ruling was issued in September 1994 confirming the request.
After reviewing our position and consulting with the Department of Finance it was determined that in policy terms, such an amendment is a significant enough change to a shareholder's dividend entitlement to warrant the application of paragraph (e) and such a modification of a share's terms should result in loss of grandfathered status.
Given this and the words of paragraph (e) which state, "where ... the terms and conditions of any share, ...... that are relevant to any matter referred to in any of subparagraphs (b)(i) to (iv) are established or modified...", we felt we could not uphold our position.
Therefore, the ruling is not to be relied upon for future transactions involving this type of arrangement. In other words, it no longer represents the position of Revenue Canada with respect to similar transactions that may be entered into by taxpayers.