Redeemable Shares Issued in a Tax Planning Arrangement

ASPE | Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement

Section 3856, Financial Instruments, currently provides an exception in paragraph 23 that requires retractable preferred shares issued in a tax planning arrangement under specific sections of the Canadian Income Tax Act (ITA) to be presented as equity and measured at par, stated or assigned value.

Following publication of two Exposure Drafts in 2014 and 2017 and various discussions on the comments received, in December 2018, the Accounting Standards Board of Canada (AcSB) published the definitive amendments to Sections 3856 and 3251, Equity, to amend the balance sheet classification of retractable preferred shares issued in a tax planning arrangement. These amendments will result in significant changes in the accounting for these shares.

Accordingly, some of the preferred shares now classified as equity under the previously described liability classification exception will remain classified as equity if they meet certain conditions. Many preferred shares will probably be reclassified as liabilities and measured at their redemption amount.

These amendments are relevant to private enterprises that report under Part II of the CPA Canada Handbook – Accounting and apply ASPE and are applicable for fiscal years beginning on of after January 1, 2021.