25 August 1991 Ruling 9119191 F - Fair Market Value of Shares - Retractability of the Shares

By services, 18 January, 2022
Official title
Fair Market Value of Shares - Retractability of the Shares
Language
French
CRA tags
85(1)(e.2)
Document number
Citation name
9119191
Severed letter type
Ruling
d7 import status
Drupal 7 entity type
Node
Drupal 7 entity ID
629790
Extra import data
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"field_external_guid": [],
"field_proprietary_citation": [],
"field_release_date_new": "1991-08-25 08:00:00",
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Main text

19(1)

Dear Sirs:

Re: Advance Income Tax Ruling

24(1)

We are writing in response to your letter of July 15, 1991 wherein you requested our views.

24(1)

                        You have asked the following questions:

1.     Would the Department accept a fixed cumulative dividend at a  certain percentage of the redemption price in place of the retraction feature? If so, what is the minimum acceptable percentage?

2.     Would the Department accept a shareholder's agreement to limit the  ability of the shareholders to retract the preferred shares to a  certain percentage per year? If so, what is the minimum  percentage which may be retracted?

3.        Would the Department accept a shareholders agreement to have the total redemption amount payable over a period of time? If so, would interest have to be charged on the outstanding balance?

Comments

As stated in the reply to question 13 at the 1980 Revenue Canada Round Table, the Department is concerned with the fair market value of the shares received as consideration for the shares transferred to the corporation pursuant to subsection 85(1) of the Income Tax Act (Canada)  (the "Act").  As described in subparagraph 14(f) of Information Circular  70-r dated September 28, 1990 issued by Revenue Canada, Taxation ("IC 70-6R2"), we are unable to provide any comments on the determination of fair market value.  However, it is our view that the fair market value of the preferred shares may be maintained if the shares carried a cumulative dividend entitlement at a rate which reflects fair market value.

Since the shareholders' agreements described above would affect the retractability of the shares and thus the fair market value of those shares, it is our position that paragraph 85(1)(e.2) of the Act would be applicable.

The comments expressed are not advance income tax rulings and are not considered binding on the Department, in respect of any taxpayer, in accordance with paragraph 21 of IC 70-6R2.

Yours truly,

for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch