2014-0528361E5 premium on redemption of foreign affiliate shares

Principal Issues: Whether a premium on the redemption of foreign affiliate shares is a dividend

Position: In the absence of an election under paragraph 93(1) of the Income Tax Act, the redemption proceeds are treated as proceeds of disposition.

Reasons: Application of the law related to proceeds of disposition.

Author: Friedlander, Lara G.
Section: 84(3), 93(1)

XXXXXXXXXX                                                                                                                   2014-052836
                                                                                                                                           L. Friedlander

August 25, 2014

Dear XXXXXXXXXX:

Re:  Mandatory Redeemable Preference Shares

This is in response to your email of January 27, 2014 concerning Rulings document 2012-0439741I7 dated April 30, 2013, relating to mandatory redeemable preference shares (“MRPS”) issued by a non-resident.

In the above-mentioned document, we indicate that upon redemption of MRPS, the redemption premium would be characterized as a dividend.  This statement does not reflect the views of the CRA.  In the absence of an election under subsection 93(1) of the Act, redemption proceeds are treated as proceeds of disposition.  Accordingly, Rulings document 2012-0439741I7 will be removed from our database. Thank you for bringing this matter to our attention.

We trust that these comments will be of assistance.

Yours truly,

G. Moore
for Director
International Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch

All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without the prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5.

© Her Majesty the Queen in Right of Canada, 2014

Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistribuer de l'information, sous quelque forme ou par quelque moyen que ce soit, de façon électronique, mécanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.

© Sa Majesté la Reine du Chef du Canada, 2014