2001 2001-0106881 - cost of property

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

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

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

Principal Issues: Change to facts and proposed transactions.

Position: rulings still apply

Reasons: changes not significant to positions taken

XXXXXXXXXX 2001-010688

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Supplementary Advance Income Tax Ruling Request
XXXXXXXXXX

This is in reply to your letter dated XXXXXXXXXX and our telephone conversations (XXXXXXXXXX), wherein you seek clarification that rulings granted in the advance income tax ruling we issued dated XXXXXXXXXX, 2001 (our file number 2001-009269 hereinafter referred to as the "Ruling"), will continue to apply given certain changes to the Facts and Proposed Transactions. You advise that the transactions described in the Ruling are still proposed, subject to the modifications as described in your letter and subsequent correspondence.

Any reference herein to paragraph or subparagraph are references to those contained in the Ruling and any defined terms used in this letter have the meanings assigned to them in the Ruling.

Specifically, you have requested the following amendments to the Ruling:

Facts

Insert "with a par value of XXXXXXXXXX $XXXXXXXXXX per share," after "common shares" and before "listed" in (i) of paragraph 5.

In paragraph 7, delete the phrase "all of which are owned indirectly by Canco through another XXXXXXXXXX corporation" and replace with "all of which are owned by Canco".

Replace subparagraph 10(h) with the following:

(h) At the Effective Time, Holdco will issue one or more promissory notes (collectively the "Holdco Note") to Canco evidencing interest-bearing indebtedness owing by Holdco to Canco, will covenant to transfer certain receivables owing immediately before the Effective Time by subsidiaries of Targetco (the "Receivables") that will be transferred to Holdco as soon as practicable after the Effective Time, and will issue common shares (the "New Holdco Shares") to Canco, all in consideration for Canco issuing its common shares to Targetco shareholders. The principal amount of the Holdco Note (the "Holdco Note Amount") will be determined prior to the Effective Time. The Holdco Note Amount will not exceed the fair market value of the Targetco shares outstanding immediately before the Effective Time less the fair market value of the Receivables at the Effective Time (the "Receivables Value") and will take into account the amount of interest-bearing indebtedness that Holdco is able to incur without resulting in the application of XXXXXXXXXX thin capitalization restrictions on the deductibility of interest (although it is anticipated that the Holdco Note Amount will be less than the full amount otherwise permitted under these restrictions). The applicable interest rate on the Holdco Note will also be determined prior to the Effective Time based on prevailing commercial interest rates for similar indebtedness. The number of New Holdco Shares issued to Canco will be equal to the number of Targetco common shares outstanding immediately before the Effective Time (other than common shares held by Targetco or any wholly owned subsidiary of Targetco or held by Canco or any wholly owned subsidiary of Canco, which shares will be cancelled). In accordance with the relevant XXXXXXXXXX corporate law, the directors of Holdco will determine the fair value of the consideration for which the New Holdco Shares are issued to be an amount equal to the fair market value of all of the outstanding Targetco shares immediately before the Effective Time less the Holdco Note Amount and less the Receivables Value.

Insert "and transferring the Receivables to Canco" after "New Holdco Shares to Canco" and before "(as described in paragraph 10(h) above)" in subparagraph 10(i).

Insert "and the Receivables" after "New Holdco Shares" and before "(the "Holdco Consideration Amount")" in subparagraph 10(j).

Rulings

Insert the additional requested ruling A.1 after Ruling A.

"A.1 For purposes of computing the adjusted cost base, for purposes of the Act, of the Receivables transferred to Canco as described in paragraph 10(h), the cost of the Receivables will be equal to the Receivables Value"

In ruling B, the phrase "(iii) the Holdco Note Amount" is replaced with "(iii) the sum of the Holdco Note Amount and the Receivables Value."

Insert "and the Receivables transferred to Canco" at the end of ruling C.

We confirm that the above changes have been made and the balance of the Ruling remains unchanged.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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