I-3 - Taxation Act

Section 21.11.14 Disposition versions

2006-03-01

21.11.14. A taxable preferred share at any particular time is

(a)  a share issued after 15 December 1987 that is a short-term preferred share at that particular time, or

(b)  a share, other than a grandfathered share, of the capital stock of a corporation issued after 8:00 p.m. Eastern Daylight Saving Time, 18 June 1987 where, at that particular time, by reason of the terms or conditions of the share or any agreement in respect of the share or its issue to which the corporation, or a specified person in relation to it, is a party,

i.  it may reasonably be considered, having regard to all the circumstances, that the amount of the dividends that may be declared or paid on the share, in this chapter referred to as the “dividend entitlement”, is, by way of a formula or otherwise, fixed, limited to a maximum, or, if with respect to the dividend that may be declared or paid on the share there is a preference over any other dividend that may be declared or paid on any other share of the capital stock of the corporation, established to be not less than a minimum, including any amount determined on a cumulative basis,

ii.  it may reasonably be considered, having regard to all the circumstances, that the amount that the shareholder, which includes a shareholder of the shareholder for the purposes of this subparagraph, is entitled to receive in respect of the share on the dissolution, liquidation or winding-up of the corporation or on the acquisition, cancellation or redemption of the share, unless the requirement to acquire, cancel or redeem the share arises only in the event of the death of the shareholder or by reason only of a right to convert or exchange the share, or on the reduction of the paid-up capital of the share by the corporation or by a specified person in relation to it, in this chapter referred to as the “liquidation entitlement”, is, by way of a formula or otherwise, fixed, limited to a maximum, or established to be not less than a minimum,

iii.  the share is convertible or exchangeable at any time, unless

(1)  it is convertible into or exchangeable for another share of the corporation or a corporation related to it that, if issued, would not be a taxable preferred share, referred to in this subparagraph and in subparagraph 2 as the “particular share”, for a right or warrant that, if exercised, would allow the person exercising it to acquire only a share of the corporation or a corporation related to it that, if issued, would not be a taxable preferred share, or for both a particular share and such right or warrant, and

(2)  all the consideration receivable for the share on the conversion or exchange is the particular share or the right or warrant described in subparagraph 1 or both such share and such right or warrant, and for the purposes of this subparagraph, where a taxpayer may become entitled upon the conversion or exchange of a share to receive any particular consideration, other than consideration described in subparagraph 1, in lieu of a fraction of a share, the particular consideration is deemed not to be consideration unless it may reasonably be considered that the particular consideration was receivable as part of a series of transactions or events one of the main purposes of which was to avoid or limit the application of Part IV.1 or VI.1 of the Income Tax Act (Revised Statutes of Canada, 1985, chapter 1, 5th Supplement), or

iv.  any person, other than the corporation, was, at or immediately before that particular time, obligated, either absolutely or contingently and either immediately or in the future, to effect any undertaking, in this chapter referred to as a “guarantee agreement”, including any guarantee, covenant or agreement to purchase or repurchase the share, and including the lending of funds to or the placing of amounts on deposit with, or on behalf of, the shareholder or any specified person in relation to the shareholder, given

(1)  as part of a transaction or event or series of transactions or events that included the issuance of the share, and

(2)  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, or allow the shareholder or a specified person in relation to the shareholder to derive earnings by reason of the ownership, holding or disposition of the share or any other property.

For the purposes of subparagraph b of the first paragraph, where the guarantee agreement in respect of a share of the capital stock of a corporation is given after 8:00 p.m. Eastern Daylight Saving Time, 18 June 1987, otherwise than pursuant to a written arrangement entered into before 8:00 p.m. Eastern Daylight Saving Time, 18 June 1987, the share is deemed to have been issued at that time and the guarantee agreement is deemed to have been given as part of a series of transactions that included the issuance of the share.

1990, c. 59, s. 23; 1997, c. 3, s. 71.