I-3, r. 1 - Regulation respecting the Taxation Act

Section 726.14r4 Disposition versions

2012-09-01

726.14R4. For the purposes of this chapter,

(a)  the dividend entitlement connected with a share of the capital stock of a corporation is deemed not to be limited to a maximum amount or fixed at a minimum amount where it may reasonably be considered that

i.  all or substantially all of the dividend entitlement can be determined by reference to the dividend entitlement connected with another share of the capital stock of the corporation that meets the requirements of subparagraph i of paragraph a of section 726.14R1, or

ii.  the dividend entitlement cannot be such as to impair the ability of the corporation to redeem another share of the capital stock of the corporation that meets the requirements of paragraph a of section 726.14R2;

(b)  the liquidation entitlement connected with a share of the capital stock of a corporation is deemed not to be limited to a maximum amount or fixed at a minimum where it may reasonably be considered that all or substantially all of the liquidation entitlement can be determined by reference to the liquidation entitlement connected with another share of the capital stock of the corporation that meets the requirements of subparagraph ii of paragraph a of section 726.14R1;

(c)  where 2 or more corporations, each of which is referred to in this paragraph as a “predecessor corporation”, merge or amalgamate, the corporation formed as a result of the merger or amalgamation, referred to in this paragraph as the “new corporation”, is deemed to be the same corporation as each of the predecessor corporations and to continue their corporate existence, and a share of the capital stock of the new corporation issued on the merger or amalgamation as consideration for a share of the capital stock of a predecessor corporation is deemed to be the same share as the share of the predecessor corporation for which it was issued, but this paragraph does not apply where the share issued on the merger or amalgamation is not a prescribed share at the time of its issue and

i.  the terms and conditions of that share differ from those of the share of the predecessor corporation for which it was issued, or

ii.  the fair market value of the share at the time of its issue differs from that of the share of the predecessor corporation for which it was issued;

(d)  any reference in subparagraphs iv and vii of paragraph a of section 726.14R1 and in paragraph b of that section to a right or an obligation of a corporation, person or partnership does not include a right or an obligation provided in an agreement in writing among the shareholders of a private corporation owning more than 50% of the issued and outstanding shares of its capital stock having full voting rights under all circumstances, where the corporation, person or partnership is a party to the agreement, unless it may reasonably be considered, in view of all the circumstances, including the terms of the agreement, the number of shareholders and their relationship to one another, that one of the main reasons for the existence of the agreement is to avoid or limit the application of section 726.14 or 726.15 of the Act;

(e)  where, at a particular time after 21 November 1985, the terms and conditions of a share are modified, any existing agreement in respect of the share is modified or a new agreement in respect of the share is entered into, the share is, for the purpose of determining whether it is a prescribed share, deemed to have been issued at that particular time; and

(f)  the determination of whether a share of the capital stock of a corporation is a prescribed share for the purposes of section 726.14R1 is made without reference to a right or obligation to redeem, acquire or cancel the share or to cause the share to be redeemed, acquired or cancelled where

i.  the share was issued pursuant to an employee share purchase agreement to an employee, referred to in this paragraph as the “holder”, of the corporation or of a corporation with which it does not deal at arm’s length,

ii.  the holder was dealing at arm’s length with each corporation referred to in subparagraph i at the time the share was issued, and

iii.  having regard to all the circumstances, including the terms of the agreement, it may reasonably be considered that

(1)  the amount payable on the redemption, acquisition or cancellation, referred to in this subparagraph and in subparagraph 2 as the “acquisition”, of the share will not exceed the adjusted cost base of the share to the holder immediately before the acquisition, where the acquisition is provided for in the agreement primarily in order to protect the holder against any loss in respect of the share, or the fair market value of the share immediately before the acquisition, where the acquisition is provided for in the agreement primarily in order to provide the holder with a market for the share, and

(2)  no portion of the amount payable on the acquisition of the share is directly determinable by reference to the profits of the corporation, or of another corporation with which it does not deal at arm’s length, for all or any part of the period during which the holder 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 agreement.

s. 726.14R4; O.C. 1549-88, s. 23; O.C. 91-94, s. 51; O.C. 1631-96, s. 33; O.C. 1707-97, s. 98; O.C. 1466-98, s. 126; O.C. 134-2009, s. 1.