Hi Lo share redemption

Hello, a situation I have not seen before - Individual bought Hi/Lo preferred shares from someone else (previous person converted common into high redemption, load paid up capital preferred shares). When the company redeems the shares from the new individual, he will have a deemed dividend, even though being redeemed for what he paid. In addition to the dividend, does he get to claim a capital loss? EG. Bought a hi/lo share ($10,000/$1) for $10,000. Redeems, taxable dividend of $9,999 (even though not making any money on it). Can he claim capital loss of $9,999 for disposal of share at $1 ($10,000 less $9,999 deemed dividend)? Couldn’t find anything anywhere on this one? Thanks in advance if anyone knows.

I don’t know what “hi/lo” shares are, but I don’t think it matters for tax purposes. You have 2 separate issues:

  1. When shares are redeemed (sold back to the issuing corporation), there may be a deemed dividend if the redemption value is greater than the PUC value. In your description, you have not stated what the redemption value is. Assuming the shares were redeemed for $10,000 and had a PUC of $1, there will be a deemed dividend of $9,999. The corporation will issue a T5 as necessary.


  1. In addition to the deemed dividend, there may be a capital gain or loss if the redemption value is greater than or less than the ACB (i.e. purchase cost). Assuming the redemption value is $10,000 and the ACB is $10,000 there will be no capital gain or loss. You or your client will have to determine this and report it on the client’s tax return (T1, T2, etc).


Thanks for your comments. Appreciated