Dear Sirs:
This is in reply to your letter of June 14, 1991, in which you requested a technical interpretation on whether a disposition occurs for the purposes of paragraph 54(c) of the Income Tax Act (the Act) in relation to a proposed transaction involving the share capital of a corporation.
24(1)
As indicated in paragraph 21 of Information Circular 70-6R2 entitled "Advance Income Tax Rulings", we are unable to issue opinions with respect to specific proposed transactions. If you wish to obtain an advance income tax ruling with respect to the above situation, a written request can be submitted in accordance with the Information Circular. We are, however, prepared to offer you the following general comments.
For the purposes of ascertaining whether there has been an actual disposition of a security for the purposes of the Act, it is essential to review all of the relevant facts to determine whether or not it is reasonable to regard the amended security as being the same property as that which underwent the change. Where the right of a class of shares to participate in declared dividends has been altered, this could significantly alter the rights attached to the outstanding shares of that class, and, as such, may result in a disposition of property at that time. We also wish to note that an examination of all the relevant facts and documents may result in other income tax ramifications.
As a final comment, we wish to bring to your attention the provisions of subsections 86(1) and (2) of the Act which apply to certain exchanges of shares.
The above comments have been provided in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2.
We regret that we could not provide you with a more meaningful reply.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch