Income Tax Regulations

6202.1 (1) For the purposes of the definition flow-through share in subsection 66(15) of the Act, a new share of the capital stock of a corporation is a prescribed share if, at the time it 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 that may be declared or paid on the share (in this section referred to as the “dividend entitlement”) may reasonably be considered to be, by way of a formula or otherwise,

    • (A) fixed,

    • (B) limited to a maximum, or

    • (C) established to be not less than a minimum (including any amount determined on a cumulative basis), where with respect to the dividends that may be declared or paid on the share there is a preference over any other dividends that may be declared or paid on any other share of the capital stock of the corporation,

  • (ii) the amount that the holder of the share is entitled to receive in respect of the share on the dissolution, liquidation or winding-up of the corporation, on a reduction of the paid-up capital of the share or on the redemption, acquisition or cancellation of the share by the corporation or by specified persons in relation to the corporation (in this section referred to as the “liquidation entitlement”) may reasonably be considered to be, 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 into another security issued by the corporation unless

    • (A) it is convertible or exchangeable only into

      • (I) another share of the corporation that, if issued, would not be a prescribed share,

      • (II) a right, including a right conferred by a warrant that, if exercised, would allow the person exercising it to acquire only a share of the corporation that, if issued, would not be a prescribed share, or

      • (III) both a share described in subclause (I) and a right or warrant described in subclause (II), and

    • (B) all the consideration receivable by the holder on the conversion or exchange of the share is the share described in subclause (A)(I) or the right or warrant described in subclause (A)(II), or both, as the case may be, or

  • (iv) the corporation has, either absolutely or contingently, an obligation to reduce, or any person or partnership has, either absolutely or contingently, an obligation to cause the corporation to reduce, the paid-up capital in respect of the share (other than pursuant to a conversion or exchange of the share, where the right to so convert or exchange does not cause the share to be a prescribed share under subparagraph (iii));

• (b) any person or partnership has, either absolutely or contingently, an obligation (other than an excluded obligation in relation to the share)

  • (i) to provide assistance,

  • (ii) to make a loan or payment,

  • (iii) to transfer property, or

  • (iv) otherwise to confer a benefit by any means whatever, including the payment of a dividend,

  either immediately or in the future, that may reasonably be considered to be, directly or indirectly, a repayment or return by the corporation or a specified person in relation to the corporation of all or part of the consideration for which the share was issued or for which a partnership interest was issued in a partnership that acquires the share;

• (c) any person or partnership has, either absolutely or contingently, an obligation (other than an excluded obligation in relation to the share) to effect any undertaking, either immediately or in the future, with respect to the share or the agreement under which the share is issued (including any guarantee, security, indemnity, covenant or agreement and including the lending of funds to or the placing of amounts on deposit with, or on behalf of, the holder of the share or, where the holder is a partnership, the members thereof or specified persons in relation to the holder or the members of the partnership, as the case may be) that may reasonably be considered to have been given to ensure, directly or indirectly, that

  • (i) any loss that the holder of the share and, where the holder is a partnership, the members thereof or specified persons in relation to the holder or the members of the partnership, as the case may be, may sustain by reason of the holding, ownership or disposition of the share or any other property is limited in any respect, or

  • (ii) the holder of the share and, where the holder is a partnership, the members thereof or specified persons in relation to the holder or the members of the partnership, as the case may be, will derive earnings by reason of the holding, ownership or disposition of the share or any other property;

• (d) the corporation or a specified person in relation to the corporation may reasonably be expected

  • (i) to acquire or cancel the share in whole or in part otherwise than on a conversion or exchange of the share that meets the conditions set out in clauses (a)(iii)(A) and (B),

  • (ii) to reduce the paid-up capital of the corporation in respect of the share otherwise than on a conversion or exchange of the share that meets the conditions set out in clauses (a)(iii)(A) and (B), or

  • (iii) to make a payment, transfer or other provision, (otherwise than pursuant to an excluded obligation in relation to the share), directly or indirectly, by way of a dividend, loan, purchase of shares, financial assistance to any purchaser of the share or, where the purchaser is a partnership, the members thereof or in any other manner whatever, that may reasonably be considered to be a repayment or return of all or part of the consideration for which the share was issued or for which a partnership interest was issued in a partnership that acquires the share,

  within 5 years after the date the share is issued, otherwise than as a consequence of an amalgamation of a subsidiary wholly-owned corporation, a winding-up of a subsidiary wholly-owned corporation to which subsection 88(1) of the Act applies or the payment of a dividend by a subsidiary wholly-owned corporation to its parent;

• (e) any person or partnership can reasonably be expected to effect, within 5 years after the date the share is issued, any undertaking which, if it were in effect at the time the share was issued, would result in the share being a prescribed share by reason of paragraph (c); or

• (f) it may reasonably be expected that, within five years after the date the share is issued,

  • (i) any of the terms or conditions of the share or any existing agreement relating to the share or its issue will thereafter be modified, or

  • (ii) any new agreement relating to the share or its issue will be entered into,

  in such a manner that the share would be a prescribed share if it had been issued at the time of the modification or at the time when the new agreement is entered into.

(2) For the purposes of the definition flow-through share in subsection 66(15) of the Act, a new share of the capital stock of a corporation is a prescribed share if

• (a) the consideration for which the share is to be issued is to be determined more than 60 days after entering into the agreement pursuant to which the share is to be issued;

• (b) the corporation or a specified person in relation to the corporation, directly or indirectly,

  • (i) provided assistance,

  • (ii) made or arranged for a loan or payment,

  • (iii) transferred property, or

  • (iv) otherwise conferred a benefit by any means whatever, including the payment of a dividend,

  for the purpose of assisting any person or partnership in acquiring the share or any person or partnership in acquiring an interest in a partnership acquiring the share (otherwise than by reason of an excluded obligation in relation to the share); or

• (c) the holder of the share or, where the holder is a partnership, a member thereof, has a right under any agreement or arrangement entered into under circumstances where it is reasonable to consider that the agreement or arrangement was contemplated at or before the time when the agreement to issue the share was entered into,

  • (i) to dispose of the share, and

  • (ii) through a transaction or event or a series of transactions or events contemplated by the agreement or arrangement, to acquire a share (referred to in this paragraph as the “acquired share”) of the capital stock of another corporation that would be a prescribed share under subsection (1) if the acquired share were issued at the time the share was issued, other than a share that would not be a prescribed share if subsection (1) were read without reference to subparagraphs (a)(iv) and (d)(i) and (ii) thereof where the acquired share is a share

    • (A) of a mutual fund corporation, or

    • (B) of a corporation that becomes a mutual fund corporation within 90 days after the acquisition of the acquired share.

(3) For the purposes of subsection (1),

• (a) the dividend entitlement of a share of the capital stock of a corporation shall be deemed not to be fixed, limited to a maximum or established to be not less than a minimum where all dividends on the share are determined solely by reference to a multiple or fraction of the dividend entitlement of another share of the capital stock of the corporation, or of another corporation that controls the corporation, where the dividend entitlement of that other share is not described in subparagraph (1)(a)(i); and

• (b) the liquidation entitlement of a share of the capital stock of a corporation shall be deemed not to be fixed, limited to a maximum or established to be not less than a minimum where all the liquidation entitlement is determinable solely by reference to the liquidation entitlement of another share of the capital stock of the corporation, or of another corporation that controls the corporation, where the liquidation entitlement of that other share is not described in subparagraph (1)(a)(ii).

(4) For the purposes of paragraphs (1)(c) and (e), an agreement entered into between the first holder of a share and another person or partnership for the sale of the share to that other person or partnership for its fair market value at the time the share is acquired by the other person or partnership (determined without regard to the agreement) shall be deemed not to be an undertaking with respect to the share.

(5) For the purposes of section 6202 and this section,

excluded obligation

excluded obligation, in relation to a share issued by a corporation, means

• (a) an obligation of the corporation

  • (i) with respect to eligibility for, or the amount of, any assistance under the Canadian Exploration and Development Incentive Program Act, the Canadian Exploration Incentive Program Act, the Ontario Mineral Exploration Program Act, 1989, Statutes of Ontario 1989, c. 40, or the Mineral Exploration Incentive Program Act (Manitoba), Statutes of Manitoba 1990-91, c. 45, or

  • (ii) with respect to the making of an election respecting such assistance and the flowing out of such assistance to the holder of the share in accordance with any of those Acts,

• (a.1) an obligation of the corporation, in respect of the share, to distribute an amount that represents a payment out of assistance to which the corporation is entitled

  • (i) under section 25.1 of the Income Tax Act, Revised Statutes of British Columbia, 1996, c. 215, and

  • (ii) as a consequence of the corporation making expenditures funded by consideration received for shares issued by the corporation in respect of which the corporation purports to renounce an amount under subsection 66(12.6) of the Act, and

• (b) an obligation of any person or partnership to effect an undertaking to indemnify a holder of the share or, where the holder is a partnership, a member thereof, for an amount not exceeding the amount of any tax payable under the Act or the laws of a province by the holder or the member of the partnership, as the case may be, as a consequence of

  • (i) the failure of the corporation to renounce an amount to the holder in respect of the share, or

  • (ii) a reduction, under subsection 66(12.73) of the Act, of an amount purported to be renounced to the holder in respect of the share;

new share

new share means a share of the capital stock of a corporation issued after June 17, 1987, other than a share issued at a particular time before 1989

• (a) pursuant to an agreement in writing entered into before June 18, 1987,

• (b) as part of a distribution of shares to the public made in accordance with the terms of a prospectus, preliminary prospectus, registration statement, offering memorandum or notice, required by law to be filed before distribution of the shares begins, filed before June 18, 1987 with a public authority in Canada in accordance with the securities legislation of the province in which the shares were distributed, or

• (c) to a partnership in which interests were issued as part of a distribution to the public made in accordance with the terms of a prospectus, preliminary prospectus, registration statement, offering memorandum or notice, required by law to be filed before distribution of the interests begins, filed before June 18, 1987 with a public authority in Canada in accordance with the securities legislation of the province in which the interests were distributed, where all interests in the partnership issued at or before the particular time were issued as part of the distribution or prior to the beginning of the distribution; (action nouvelle)

specified person

specified person, in relation to any particular person, means another person with whom the particular person does not deal at arm’s length or any partnership or trust of which the particular person or the other person is a member or beneficiary, respectively. (personne apparentée)