V.A. Sider (613) 995-1178
August 17, 1983
Dear XXXX
We are writing in response to your letter of July 15, concerning certain tax implications of continuations under the new Alberta Business Corporations Act ("ABCA").
You have indicated that continuation under the ABCA is effected by preparation of a special shareholder's resolution, the filing of Articles of Continuance, Notice of Directors, Notice of Registered Office and related schedules. Thereafter the existing share certificates of the corporation would be cancelled and replaced by new share certificates that comply with provisions of the new legislation.
You have requested whether section 86 would apply if:
1. The rights and attributes of the shares prior to continuation are the same as the rights and attributes of the shares after continuation, or
2. The rights and attributes of the shares before continuation are changed to some extent in the continuation process.
Your concern is whether we would consider a "continuation" to be a "reorganization of capital" in accordance with section 86, or would we consider modification to the rights and attributes of shares on continuation to be a reorganization of capital.
We would like to preface our remarks by saying that we do not consider that continuation under the ABCA, in and by itself, would create a disposition of the shares of the continued corporation. If the attributes of certain shares are changed on continuance, without a cancellation of the shares, the significance of the change is the determining factor in deciding whether the shares have been disposed of and new shares acquired. See IT-448 for a further discussion of this.
However, if shares are cancelled on continuation, a disposition of the original shares occurs due to clause 54(c)(ii)(A) of the Income Tax Act. We would consider that the cancellation of a class of shares and the corresponding issuance of other shares would be a reorganization of capital for purposes of section 86. In addition, if no shares are redeemed or cancelled but attributes of shares are changed, as a result of a continuation, with the effect that the relative interests of shareholders of the corporations have changed resulting in a disposition within the guidelines in IT-448 , it is our view that this would constitute a reorganization of capital for purposes of section 86.
Our comments have been confined to the meaning of the term "reorganization of capital" and have not addressed the other requirements which are necessary for section 86 to apply.
We trust our comments will be of assistance to you.
Yours truly,
for Director General Corporate Rulings Directorate Legislation Branch