Accounting Standards for Private Enterprises

Exposure Draft, Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement (Proposed amendments to Sections 1591, 3251 and 3856)

Summary

The Accounting Standards Board proposes, subject to comments received following exposure, to amend FINANCIAL INSTRUMENTS, Section 3856 in Part II of the CPA Canada Handbook – Accounting, to modify the accounting for retractable or mandatorily redeemable shares issued in a tax planning arrangement.

The Board also proposes, subject to comments received following exposure, to amend:

  • SUBSIDIARIES, Section 1591, to add guidance on substantive rights; and
  • EQUITY, Section 3251, to present the effects of the amendments to FINANCIAL INSTRUMENTS, Section 3856, as a separate component of equity.

Staff Contact(s)

Lester Cheng, CPA, CA

Director, Accounting Standards Board

Background

Retractable or mandatorily redeemable shares issued in a tax planning arrangement are a liability in accordance with FINANCIAL STATEMENT CONCEPTS, paragraph 1000.28-.30. FINANCIAL INSTRUMENTS, paragraph 3856.23, provides an exception from liability treatment and requires that these shares be classified as equity when issued under specific sections of the Income Tax Act. Issues relating to scope, measurement and reclassification of these shares have arisen in practice. As a result, the Board is re-examining this classification exception to address application issues in practice today.