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Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement (Proposed Amendments to Sections 1591, 3251 and 3856) [Completed]

Effective date:

For an­nual fi­nan­cial state­ments re­lat­ing to fis­cal years be­gin­ning on or af­ter Jan­u­ary 1, 2021 (was for fiscal years beginning on or after January 1, 2020), with earlier application permitted.

Last updated:

August 2020

Reach out to our Section 3856 Specialist

Kerry Danyluk

Overview

The final amendments to Part II in respect of this project were issued to the CPA Canada Handbook in December 2018. The following is a summary of the changes to Part II:

Section 1591, Subsidiaries

This Section has been amended to add guidance on substantive rights to evaluate their effect on control assessments.

Section 3251, Equity

This Section has been amended for retractable or mandatorily redeemable shares issued in a tax planning arrangement to:

  • add guidance on recording in either retained earnings or a separate component of equity the effect of classifying the shares as a financial liability; and
  • add disclosure requirements for the shares.

Section 3856, Financial Instruments

This Section has been amended to revise the guidance on the classification of retractable or mandatorily redeemable shares issued in a tax planning arrangement as follows to:

  • require classification as equity or a financial liability based on three conditions;
  • provide an option to present the shares as a financial liability;
  • require reassessment of the equity classification of the shares if an event or transaction occurs which indicates one of the conditions for equity classification is no longer met;
  • provide guidance that the shares classified as a financial liability cannot subsequently be reclassified as equity;
  • require measurement at the redemption amount when the shares are classified as a financial liability; and
  • add disclosure requirements for the nature of the: (i) tax planning arrangement resulting in the issuance of the shares; and (ii) separate component of equity or the amount charged to retained earnings (as applicable).

These amend­ments were originally issued to the CPA Canada Handbook - Accounting Part II on December 1, 2018 as being ef­fec­tive for an­nual fi­nan­cial state­ments re­lat­ing to fis­cal years be­gin­ning on or af­ter Jan­u­ary 1, 2020 with ear­lier ap­pli­ca­tion per­mit­ted.

At its meeting on April 15, 2020, as a result of the impact of the Covid 19 pandemic, the AcSB decided to defer the effective date of these amendments to Section 1591, Section 3251 and Section 3856 by one year to fiscal years beginning on or after January 1, 2021. Earlier application continues to be permitted. The relevant amendments were issued to the CPA Canada Handbook – Accounting Part II on August 1, 2020.

 

Other developments

August 2020

On August 1, 2020, the amendments deferring the effective date by one year to fiscal years beginning on or after January 1, 2021, with earlier application permitted, were issued to the CPA Canada Handbook – Accounting Part II.

December 2018

On December 12, 2018, the AcSB released the Basis for Conclusions – Retractable or Mandatorily Redeemable Shares Issued in a Tax Planning Arrangement.

On December 1, 2018, the final amendments to Part II in respect of this project were issued to the CPA Canada Handbook.

September 2017

On September 29, 2017, the AcSB issued an Exposure Draft re-examining the accounting for retractable or mandatorily redeemable shares issued in a tax planning arrangement (formerly Redeemable Preferred Shares Issued in a Tax Planning Arrangement). Stakeholders are encouraged to submit their comments by January 15, 2018.

February 2017

On February 28, 2017, the staff of the AcSB updated this project to indicate that the AcSB expects to issue a Re-exposure Draft in Q3/2017.

October 2014

On October 1, 2014, the AcSB issued for public comment an Exposure Draft that contains proposed amendments to Section 3856, Financial Instruments, in respect of Redeemable Preferred Shares Issued in a Tax Planning Arrangement.

March 2013

On March 19-20, 2013, the AcSB approved a project to re-examine the accounting for redeemable preferred shares issued in a tax planning arrangement, as set out in Financial Instruments, paragraph 3856.23.

 

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