2 December 2025 CTF Roundtable Q. 9, 2025-1080731C6 - Subsection 191(4) and specified amount

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: In circumstances where a share is issued, whether FMV can be used as the specified amount.

Position: No.

Reasons: An amount (in dollar terms) must be specified.

2025 CTF Annual Tax Conference

CRA Roundtable

Question 9 – Subsection 191(4) and specified amount

Subsection 191(4) provides for an exception to the application of Part VI.1 tax to dividends deemed to have been paid on a redemption, acquisition or cancellation of a share to which subsection 84(2) or 84(3) applies. In order for this exception to apply, the terms or conditions of the share, or the agreement in respect of the share must specify an amount in respect of the share, including an amount for which the share is to be redeemed, acquired or cancelled. In circumstances where a share is issued, the amount specified at the time of issuance must not exceed the fair market value (“FMV”) of the consideration for which such share was issued.

The CRA has indicated in the past that, in order to be valid, a specified amount must be expressed as an actual dollar amount (and not as a formula) and must not be subject to change, pursuant to a price adjustment clause (“PAC”), or otherwise.

Questions

1. Considering the above, can the CRA confirm if there would be a valid specified amount for purposes of subsection 191(4), where the terms or conditions of the share provide that the specified amount is the FMV of the consideration for which the share was issued?

2. Can the CRA provide clarification with respect to its position on the application of PACs in the context of subsection 191(4)?

Specifically, in CRA Document No. 2007-0250831E5, the CRA reasserted its position that, for the purposes of subsection 191(4), the specified amount cannot be subject to a PAC. However, in CRA Document No. 2016-0634551E5 (the “2016 Interpretation”), the CRA stated that, in circumstances where the terms or conditions of taxable preferred shares contain a PAC with respect to the redemption amount of the shares, such PAC will not, in and of itself, negate the amount specified for the purposes of subsection 191(4). In addition, the CRA stated that if the PAC became operative after the redemption of the shares to increase the redemption amount to an amount in excess of the specified amount, the excess would not qualify as an excluded dividend by virtue of subsection 191(5). However, the operation of the PAC would not, in and of itself, result in the original deemed dividend being disqualified as an excluded dividend. On the other hand, if the PAC were to become operative to reduce the redemption amount to an amount that is less than the specified amount, the requirement in subsection 191(4) that the specified amount not exceed the FMV of the consideration for which such shares were issued, would not be met. As a result, the entire amount of the original deemed dividend would be disqualified as an excluded dividend for the purposes of subsection 191(4).

CRA Response (A)

Part VI.1 is concerned with after-tax financing through the use of taxable preferred shares. The purpose of Part VI.1 tax is, therefore, to ensure that tax is paid on dividends paid, or deemed to have been paid, on shares that have debt-like characteristics. Such after-tax financing could, for example, take the form of preferred shares that are redeemed for an amount that exceeds the FMV of the consideration for which such shares were issued.

In circumstances where a share is issued, the purpose of subsection 191(4) is to have the issuer corporation indicate, at the time the share is issued, an amount which is equal to, or that does not exceed, the FMV of the consideration for which the share was issued. The share can then be redeemed to the extent of this amount without attracting Part VI.1 tax.

Having the issuer corporation specify an amount was intended to cut down on debates as to the FMV of the consideration for which the share was issued at some future date when the share is redeemed. This objective would be defeated if the issuer corporation could specify the amount by way of a formula or simply indicate that the specified amount is equal to the FMV of the consideration for which the share was issued. A specified amount that is adjusted pursuant to a PAC (or some other mechanism) would give rise to the same issue.

For these reasons, the CRA’s position remains that in order to be valid, a specified amount must be expressed as an actual dollar amount (and not as a formula) and must not be subject to change, pursuant to a PAC, or otherwise.

CRA Response (B)

The CRA’s position with respect to PACs in relation to the application of subsection 191(4) remains as expressed in the 2016 Interpretation and as noted as part of Question B, above.

Specifically, in circumstances where a PAC operates to adjust the redemption amount (and not the specified amount) and the result of the adjustment is that the redemption amount is equal to, or exceeds, the specified amount, then the operation of such PAC would not, in and of itself, result in the original deemed dividend being disqualified as an excluded dividend (except that any amount in excess of the specified amount would not qualify as an excluded dividend by virtue of subsection 191(5)).

However, if the PAC were to become operative to reduce the redemption amount to an amount that is less than the specified amount, then the entire amount of the original deemed dividend would be disqualified as an excluded dividend for the purposes of subsection 191(4).

Matthew K.X. Weaver
2025-108073
December 2, 2025