2014-0534941E5 Flow-through share ss 66(15) of the Income Tax Act

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Whether a right (other than a prescribed right) to acquire a share of the capital stock of a principal business corporation will be a flow-through share where the capital stock to be acquired under the right does not qualify or will not qualify as a flow-through share but the right otherwise satisfies the conditions of the definition of a flow-through share under subsection 66(15) of the Income Tax Act?

Position: Yes.

Reasons: The Law.

Author: Evans, Sean
Section: 66(15)

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                                                                                                                                                   2014-053494
                                                                                                                                                   Sean Evans
                                                                                                                                                   613-957-2095

September 5, 2014

Dear Sir:

Re: Flow-through share under subsection 66(15) of the Income Tax Act.

This is in response to your emails dated December 14, 2012 and August 13, 2014, which enquired about whether a right (other than a prescribed right) to acquire a share of the capital stock of a principal-business corporation will be a flow-through share where the share to be acquired under the right does not qualify or will not qualify as a flow-through share but the right otherwise satisfies the conditions of the definition of a flow-through share under subsection 66(15) of the Income Tax Act (Act).

Our Comments:

Written confirmation of the income tax implications inherent in particular transactions is given by this directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request as described in Information Circular 70-6R6 dated August 29, 2014, issued by the Canada Revenue Agency (CRA).  A fee is charged for this service.  Although we are unable to provide any comments with respect to the specific situations that you have described, otherwise than in the form of an advance income tax ruling, we will provide the following general comments.

The definition of “flow-through share” in subsection 66(15) of the Act was amended by the Technical Tax Amendments Act, 2012, S.C. 2013, c. 34, subsection 199(6), Bill C-48 assented to 2013-06-26, which states:

“flow-through share” means a share (other than a prescribed share) of the capital stock of a principal-business corporation, or a right (other than a prescribed right) to acquire a share of the capital stock of a principal-business corporation… [bold is ours]

In accordance with subsection 66(15) of the Act, provided that the right would otherwise qualify as a flow-through share, the right (other than a prescribed right) would continue to meet the conditions of a flow-through share when it is a right to acquire a share of the capital stock of a principal-business corporation that does not meet the definition of a flow-through share.

We trust that our comments, provided in accordance with paragraph 6 of the Information Circular 70-6R6, will be of assistance.

Yours truly,

 

Fiona Harrison, CPA, CA|
Manager,
Resources Section
Reorganizations Division
Income Tax Rulings Directorate
Legislative Policy & Regulatory Affairs Branch

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