| 24(1) | 902509 |
| M.P. Sarazin | |
| (613) 957-2125 |
19(1)
November 8, 1990
Dear Sirs:
We are writing in response to your letter dated September 13, 1990 wherein you requested our opinion on the application of subsection 256(1.1) of the Income Tax Act (Canada) (the "Act") to the situation there a corporation proposes to include in its capital structure a class of preferred shares, issuable in series, with each series bearing a dividend rate equal to the prescribed rate of interest referred to in paragraph 256(1.1)(d) of the Act at the time the particular series is issued.
You are of the view that the class of shares qualify as a "specified class" as defined in subsection 256(1.1) of the Act. You believe that this particular type of structure would permit fresh injections into the share capital of the corporation, with the shares so issued bearing the highest possible dividend rate.
It is our view that where shares of a class are issued in series then a reference to a "class" is to be read as a reference to a "series of the class" for the purposes of subsection 256(1.1) of the Act. Our position is based on subsection 248(6) which provides that "in its application in relation to a corporation that has issued shares of a class of its capital stock in one or more series, a reference in this Act to the "class" shall be read, with such modifications as the circumstances require, as a reference to a "series of the class"."
In determining whether a particular series of a class of shares qualifies as a specified class, as defined in subsection 256(1.1) of the Act, the particular facts would have to be reviewed to determine whether or not all of the conditions present in paragraph 256(1.1)(a) to 256(1.1)(e) of the Act are satisfied by the particular series of the class. Where a particular series of the class of shares has a dividend rate equal to a percentage of an amount equal to the fair market value of the consideration for which the shares were issued (with such percentage being predetermined to be the prescribed rate of interest at the time the shares were issued), it is our general view that the series of the class of share would satisfy the condition present in paragraph 256(1.1)(d) of the Act.
We regret that we cannot provide you with any more meaningful comments without a review of all of the relevant facts.
The foregoing comments represent our general views with respect to the subject matter of your letter.
Yours truly,
for DirectorReorganizations and Non-Resident DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch