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: An individual (the "Individual") owns exchangeable shares of a Canadian corporation ("Canco"). The Individual also owns stock options with respect to XXXXXXXXXX common shares of a US corporation ("USco"). The options are excercisable at various dates and prices in the future. The Individual will acquire USco common shares as a result of the exercise of some of the options. Up to XXXXXXXXXX, the holder of exchangeable shares of Canco has the right to exchange them for common shares of USco.
During the year XXXXXXXXXX, the Individual will sell some Canco exchangeable shares and USco common shares. For the purposes of the identical property rules that are set out in section 47 of the Income Tax Act (the "Act"), will the Canco exchangeable shares be considered to be identical to the USco common shares?
Position: No
Reasons: There are two separate legal entities with each entity having its own operations, assets and liabilities.
XXXXXXXXXX
XXXXXXXXXX 2000-000749
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX ("the Individual")
XXXXXXXXXX
We are replying to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the Individual. We also acknowledge our telephone conversations (XXXXXXXXXX) in which we obtained some clarification.
To the best of your knowledge, and that of the Individual involved, none of the issues contained herein:
(i) is in an earlier return of the Individual or a related person;
(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Individual or a related person;
(iii) is under objection by the Individual or a related person; and
(iv) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supplement), c.1, as amended, (the "Act").
Our understanding of the facts and proposed transactions is as follows:
Statement of Facts
1. XXXXXXXXXX ("Canco") is a public corporation, incorporated pursuant to the laws of Canada. Its shares are traded on the XXXXXXXXXX Stock Exchange.
2. XXXXXXXXXX ("USco") is a public corporation, incorporated pursuant to the laws of XXXXXXXXXX. Its shares are traded on the XXXXXXXXXX.
3. The Individual, who is an employee of Canco, owns XXXXXXXXXX exchangeable shares of Canco. The "adjusted cost base" of these shares, pursuant to the definition of this term in section 54 of the Act, is nominal.
4. The Individual also owns XXXXXXXXXX options with respect to common shares of USco. The options are excercisable at various dates and prices in the future. The Individual does not currently own any common shares in USco.
5. Holders of exchangeable shares of Canco have the right to exchange them for common shares of USco at any time until XXXXXXXXXX. Common shares of USco are not exchangeable for shares of Canco.
Proposed Transaction
6. The Individual will sell Canco shares during XXXXXXXXXX. None of the Canco shares will be exchanged for shares of USco by the Individual. The Individual will also exercise some options in common shares of USco and will sell such common shares during XXXXXXXXXX.
Purpose of the Proposed Transaction
7. The Individual wishes to realize the proceeds of Canco exchangeable shares and USco common shares.
Ruling Requested and Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, we confirm that the Canco exchangeable shares and the USco common shares will not be considered to be identical properties for the purposes of section 47 of the Act.
This ruling is given subject to the general limitations and qualifications set forth in Information Circular 70-6R3 dated December 30, 1996, and is binding on the Canada Customs and Revenue Agency, provided the proposed transactions are completed on or before XXXXXXXXXX.
The above ruling is based on the law as it presently reads and does not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.
Yours truly,
for Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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