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D. Holtz (613) 995-1178
April 9, 1985
Dear Sirs:
Re: Subsection 54(c), Section 51, Paragraph 39(l)(c) and Subparagraph 40(2)(g)(ii)
This is in reply to your letter of February 11, 1985 wherein you requested technical interpretations pertaining to the above-referenced provisions of the Income Tax Act (the "Act").
As your letter involves a factual situation and proposed transactions, your request should be the subject matter of an advance income tax ruling.
In your letter, you referred to paragraph 5 of Interpretation Bulletin IT-448 , which states that "the addition of an optional conversion feature to a particular class of security does not generally involve a disposition".
We should also refer you to the comments in paragraph 4 of that Interpretation Bulletin which states that the comments in the Bulletin are only guidelines and there are no "hard and fast" rules.
In our view, whether or not the addition of a particular conversion feature results in a disposition depends on whether it is reasonable to regard the amended security as being the same property that underwent the change, which is a question of fact based on the particular situation.
In your example, provided it is reasonable to draw the above conclusion and the "conversion" meets all of the requirements of section 51, we would agree with your conclusions.
We trust that the above will be of some assistance.
Yours truly,
Chief Corporate Reorganizations Section Specialty Corporations Rulings Division Corporate Rulings Directorate Legislation Branch