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Since its April 2014 meeting, the Private Enterprise Advisory Committee (PEAC) has been discussing presentation requirements related to the recognition of redeemable preferred shares issued in a tax planning arrangement.
Currently, ASPE 3856
Financial Instruments requires tax planning preferred shares (Income Tax Act Sections 51, 85, 85.1, 86, 87, or 88) recorded at par, stated, or assigned value to be presented as a separate line item in the equity section of the balance sheet. A suitable description is required, which should provide the total redemption amount and should indicate that the shares are redeemable at the option of the holder.
In October 2014, the Accounting Standards Board (AcSB) issued an Exposure Draft (ED) to reflect proposed changes to ASPE 3856. The ED reflected the PEAC’s and AcSB’s view that such shares should be presented as a liability and measured on initial recognition at fair value. The resulting debit entry should be presented as a separate component of equity, that would be reclassified to retained earnings as the respective shares are redeemed. New disclosure of a description of the transaction that resulted in the redeemable shares and separate component of equity was also proposed.
Following the release of its ED, the AcSB held a number of roundtables with financial statement users, private entities and their auditors to elicit stakeholders’ views on the proposed revisions to the accounting requirements for redeemable preferred shares issued in a tax planning arrangement. It also received extensive feedback from stakeholders through responses to its ED. In response to significant concerns raised by stakeholders, the AcSB communicated its agreement to explore alternatives to the manner in which the classification exception for redeemable preferred shares issued in a tax planning arrangement is proposed in the ED.
Throughout 2016 and 2017, the PEAC and AcSB deliberated the additional analysis performed relating to the characteristics of tax planning arrangements and alternative bases under which a classification exception might be considered.
In light of the additional analysis and field testing performed, in September 2017, the AcSB issued a new ED titled Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement (Proposed Amendments to Sections 1591, 3251 and 3856). The main features of the ED are:
The AcSB is holding roundtables in November 2017 to seek input on the ED from stakeholders. Interested participants can attend in person, or by video or teleconference. Registration for the roundtables can be made on the Financial Reporting & Assurance Standards Canada website by clicking here.
Comments on the ED must be received by January 15, 2018. The AcSB expects to issue the final amendments in the first quarter of 2019, if no significant changes to the proposals are required. The proposed effective date of the amendments would be for fiscal years beginning on or after January 1, 2020.
For more information on the financial reporting library, contact a local
MNP Assurance Professional, or
Jody MacKenzie, Director, Assurance Professional Standards.
This communication contains a general overview of the topic and is current as of October 15, 2017. The application of the principles addressed will depend upon the particular facts and circumstances of each individual case. Accordingly, this publication is not a substitute for professional advice and we recommend that any decisions you take about the application or not of any of the information presented be made in consultation with a qualified professional who can address any variance that may be required to reflect your circumstances. Please contact your local MNP representative for customized assistance with the application of this material. MNP LLP accepts no responsibility or liability for any loss related to any person's use of or reliance upon this material. © MNP LLP 2017. All rights reserved.
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