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Income Tax Regulations (C.R.C., c. 945)

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Regulations are current to 2021-03-23 and last amended on 2020-12-20. Previous Versions

PART LXIIPrescribed Securities, Shares and Debt Obligations (continued)

[
  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/2001-187, s. 5
]

Prescribed Shares (continued)

 The Class I Special Shares of Reed Stenhouse Companies Limited, issued before January 1, 1986, are prescribed for the purposes of subsection 84(8) of the Act.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/86-1136, s. 8
  •  (1) For the purposes of paragraph 183.1(4)(c) of the Act (as it read in its application to transactions entered into before September 13, 1988), a share is a prescribed share of the capital stock of an acquiring corporation where, at the time the share is issued

    • (a) under the terms or conditions of the share or any agreement in respect of the share or its issue,

      • (i) the amount of the dividends (in this section referred to as the “dividend entitlement”) that the corporation may declare or pay on the share is not limited to a maximum amount or fixed at a minimum amount at that time or at any time thereafter by way of a formula or otherwise,

      • (ii) the amount (in this section referred to as the “liquidation entitlement”) that the holder of the share is entitled to receive on the share on the dissolution, liquidation or winding-up of the corporation is not limited to a maximum amount or fixed at a minimum amount by way of a formula or otherwise,

      • (iii) the share cannot be converted into any other security, other than into another security of the corporation or of another corporation with which it does not deal at arm’s length that is, or would be at the date of conversion, a prescribed share,

      • (iv) the holder of the share does not, at that time or at any time thereafter, have the right or obligation to cause the share to be redeemed, acquired or cancelled by the corporation or any specified person in relation to the corporation, except where the redemption, acquisition or cancellation is required pursuant to a conversion that is not prohibited by subparagraph (iii),

      • (v) no person or partnership has, either absolutely or contingently, an obligation to reduce, or to cause the corporation to reduce, at that time or at any time thereafter, the paid-up capital in respect of the share, otherwise than by way of a redemption, acquisition or cancellation of the share that is not prohibited by this section, and

      • (vi) neither the corporation nor any specified person in relation to the corporation has, either absolutely or contingently, the right or obligation to redeem, acquire or cancel, at that time or at any time thereafter, the share in whole or in part, except where the redemption, acquisition or cancellation is required pursuant to a conversion that is not prohibited by subparagraph (iii); and

    • (b) it cannot reasonably be expected, having regard to all the circumstances, that any of the terms or conditions of the share or any existing agreement in respect of the share or its issue will be modified or amended, or that any new agreement in respect of the share or its issue will be entered into, in such a manner that the share would not be a prescribed share if it had been issued at the time of such modification or amendment or at the time the new agreement is entered into.

  • (2) For the purposes of this section,

    • (a) the dividend entitlement of a share of the capital stock of a corporation shall be deemed not to be limited to a maximum amount or fixed at a minimum amount where it may reasonably be considered that all or substantially all the dividend entitlement is determinable by reference to the dividend entitlement of another share of the capital stock of the corporation that meets the requirements of subparagraph (1)(a)(i);

    • (b) the liquidation entitlement of a share of the capital stock of a corporation shall be deemed not to be limited to a maximum amount or fixed at a minimum amount where it may reasonably be considered that all or substantially all of the liquidation entitlement is determinable by reference to the liquidation entitlement of another share of the capital stock of the corporation that meets the requirements of subparagraph (1)(a)(ii);

    • (c) where at any particular time after June 3, 1987, the terms or conditions of a share are changed or any existing agreement in respect of the share is changed or a new agreement in respect of the share is entered into, the share shall, for the purpose of determining whether it is a prescribed share, be deemed to have been issued at that particular time;

    • (d) the determination of whether a share of the capital stock of a corporation owned by an employee of the corporation or another corporation with which it does not deal at arm’s length is a prescribed share shall be made without reference to a right or obligation with respect to an acquisition of the share, the consideration for which is described in subparagraph 183.1(4)(c)(i) or (ii) of the Act (as those subparagraphs read in their application to transactions entered into before September 13, 1988) where no portion of the amount payable on the acquisition of the share is directly determinable by reference to the profits of the corporation or the other corporation for all or any part of the period during which the employee owned the share or had a right to acquire the share, unless the reference to the profits of the corporation or the other corporation is only for the purpose of determining the fair market value of the share pursuant to a formula set out in the employee share purchase agreement under which the employee acquired the share; and

    • (e) a reference in subparagraphs (1)(a)(iv) and (vi) to a right or obligation of the corporation or a person or partnership does not include a right or obligation provided in a written agreement among shareholders of a private corporation owning more than 50 per cent of its issued and outstanding share capital having full voting rights under all circumstances to which the corporation, person or partnership is a party unless it may reasonably be considered, having regard to all the circumstances including the terms of the agreement and the number and relationship of the shareholders, that one of the main reasons for the existence of the agreement is to avoid or limit the application of subsection 183.1(1) of the Act.

  • (3) For the purposes of subsection (1), specified person in relation to a corporation means any person or partnership with whom the corporation does not deal at arm’s length or any partnership or trust of which the corporation (or a person or partnership with whom the corporation does not deal at arm’s length) is a member or beneficiary, respectively.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/90-607, s. 2
  • SOR/92-681, s. 3
  • SOR/94-686, ss. 78(F), 79(F)
  •  (1) For the purposes of clause 212(1)(b)(vii)(E) of the Act, a prescribed security with respect to an obligation of a corporation is

    • (a) a share of the capital stock of the corporation unless

      • (i) under the terms and conditions of the share, any agreement relating to the share or any modification of such terms, conditions or agreement, the corporation or a specified person in relation to the corporation is or may, at any time within five years after the date of the issue of the obligation, be required to redeem, acquire or cancel, in whole or in part, the share (unless the share is or may be required to be redeemed, acquired or cancelled by reason only of a right to convert the share into, or exchange the share for, another share of the corporation that, if issued, would be a prescribed security) or to reduce its paid-up capital,

      • (ii) as a result of the modification or establishment of the terms or conditions of the share or the changing or entering into of any agreement in respect of the share, the corporation or a specified person in relation to the corporation may, within five years after the date of the issue of the obligation, reasonably be expected to redeem, acquire or cancel, in whole or in part, the share (unless the share is or may be required to be redeemed, acquired or cancelled by reason only of a right to convert the share into, or exchange the share for, another share of the corporation that, if issued, would be a prescribed security) or to reduce its paid-up capital, or

      • (iii) as a result of the terms or conditions of the share or any agreement entered into by the corporation or a specified person in relation to the corporation or any modification of such terms, conditions or agreement, any person is required, either absolutely or contingently, within five years after the date of the issue of the obligation, to effect any undertaking, including any guarantee, covenant or agreement to purchase or repurchase the share, and including a loan of funds to or the placing of amounts on deposit with, or on behalf of, the shareholder or a specified person in relation to the shareholder given

        • (A) to ensure that any loss that the shareholder or a specified person in relation to the shareholder may sustain, by reason of the ownership, holding or disposition of the share or any other property, is limited in any respect, and

        • (B) as part of a transaction or event or series of transactions or events that included the issuance or acquisition of the obligation,

        and for the purposes of this subparagraph, where such an undertaking in respect of a share is given at any particular time after the date of the issue of the obligation, the obligation shall be deemed to have been issued at the particular time and the undertaking shall be deemed to have been given as part of a series of transactions that included the issuance or acquisition of the obligation, and

    • (b) a right or warrant to acquire a share of the capital stock of the corporation that would, if issued, be a prescribed security with respect to the obligation,

    where all the consideration receivable upon a conversion or exchange of the obligation or the prescribed security, as the case may be, is a share of the capital stock of the corporation described in paragraph (a) or a right or warrant described in paragraph (b), or both, as the case may be.

  • (2) For the purposes of this section, where a taxpayer may become entitled upon the conversion or exchange of an obligation or a prescribed security to receive consideration in lieu of a fraction of a share, that consideration shall be deemed not to be consideration unless it may reasonably be considered to be receivable as part of a series of transactions or events one of the main purposes of which is to avoid or limit the application of Part XIII of the Act.

  • (3) In this section, specified person, in relation to a corporation or a shareholder, means any person with whom the corporation or the shareholder, as the case may be, does not deal at arm’s length or any partnership or trust of which the corporation or the shareholder, as the case may be, or the person is a member or beneficiary, respectively.

  • [NOTE: Application provisions are not included in the consolidated text
  • see relevant amending Acts and regulations.]
  • SOR/90-285, s. 1
  • SOR/94-686, ss. 78(F), 79(F)
 
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