In line with its recent tendency to release administrative
interpretations informally, in December the Canada Revenue Agency
(CRA) released an Income Tax Technical News (ITTN), which
can be of use to your practice.
ITTN No. 39, Settlement of a Shareholder Class Action Suit
– Compensation by Way of Cash and Shares,
provides an easy roadmap for dealing with receipts under class
action settlements in cases where there were allegations the price
paid for shares was artificially inflated. ITTN No. 39 will apply
in cases where the settlement payment (consisting of cash and/or
shares) is directly related to the number of shares initially
The overall approach of ITTN No. 39 is to provide for the
reduction of the tax cost of the shares if they have not been
disposed of, or for an inclusion in income in the year of
settlement either as a capital gain or income depending on the
taxpayer's own circumstances. More detailed computations will
have to be done in cases where some of the shares have been sold in
the intervening years while the remainder is still on hand at the
time of the settlement. For those situations, we suggest referring
directly to ITTN No.39, as the examples described are easy to
One last interesting feature of ITTN No. 39 relates to
situations where shares were originally acquired through a
Registered Retirement Savings Plan (RRSP) or a Registered
Retirement Income Fund (RRIF). In these cases, taxpayers will be
allowed to transfer the settlement amount they receive without tax
if these are put back into the RRSP or RRIF within six months of
receipt or within the year in which they are received (whichever is
later). From a practical standpoint, this last facet is useful as
it treats the settlement proceeds as if they were received tax-free
within the RRSP or RRIF.
Overall, this recent technical news provides practical solutions
for dealing with the settlement of certain class actions, which
sometimes could be a compliance nightmare.
Should you require any further information on the topic, please
do not hesitate to contact us.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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