Income Tax Severed Letters - 2001-01-05

Principal Issues:

1. Whether the deferred taxes in respect of a property to be transferred pursuant to a subsection 85(1) election in the course of a butterfly reorganization are relevant for purposes of valuing the property to be transferred ?

2. Whether the proposed sale of a property by DC to TC as part of the series which includes the proposed transactions, where such sale occurs immediately after the butterfly reorganization, will be part of the distribution, even though such sale will comply with the rules set out in paragraph 55(3.1)(d) ?

3. Whether the proposed reallocation of the mortgage balances in respect of two of its properties will result in an acquisition of property by DC in contemplation of the distribution when both properties are properties of the same type for purposes of the distribution ?

4. TC previously transferred a subject property to DC and received DC non-voting preferred shares as consideration. DC now proposes to reconvey the subject property back to TC for purposes of a distribution by DC and to add a voting right to each of its non-voting preferred shares held by TC such that DC will be connected with TC for purposed of Part IV tax. As Part IV tax provisions do not contain anti-avoidance rules similar to subsection 191(3), whether the proposed addition of the voting right to the DC non-voting preferred shares will be subject to the application of the subsection 245(2) ?

5. Whether the addition of a voting right to a particular class of preferred shares of DC will constitute a disposition of such shares ?

Position:

1. No.

2. Yes.

3. Provided that such increase and decrease in the mortgage balances will not result in any change to the aggregate principal amount owing under such mortgages and will not result in any significant change to the aggregate current portion of the amount owing by DC under the two mortgages, it will not result in an acquisition of property.

4. No.

5. Provided that the addition of the voting right to the particular class of preferred shares of DC will not result in an acquisition of control of DC by the holder of the particular class of preferred shares of DC, the answer is no.

Reasons:

Principal Issues:

An individual (the Claimant ) sustained personal injuries when XXXXXXXXXX was involved in a motor vehicle accident. The individual and XXXXXXXXXX Guardian commenced an action against the other driver. Pursuant to a court settlement, the defendants' insurers will agree to make periodic payments to the Claimant and if the Claimant dies within the XXXXXXXXXX year guarantee period, to the Claimant's estate.

The issue is the income tax treatment of the periodic payments.

Principal Issues: Whether payments made by the taxpayer to retired employees and/or their families for foregone benefits in respect of life insurance and medical benefits are taxable. These benefits were discontinued as a result of financial difficulties.

Position: No.

Reasons: The payment will not be considered income pursuant to section 3, section 5, section 6 or section 56, nor will such amount constitute proceeds of disposition, as defined in section 54.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principales Questions

1. Les fonds reçus de l'émission des débentures sont-ils considérés de l'argent emprunté pour l'application du sous-alinéa 20(1)c)(ii) de la Loi?

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

XXXXXXXXXX 980393

XXXXXXXXXX, 1999

Dear Sir:

Re: XXXXXXXXXX
Advance Income Tax Ruling