2005 Ruling 2005-0148251R3 - Disposition of Taxable Canadian 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.

Principal Issues: Will the taxpayer's disposition of taxable Canadian property be subject to Canadian income tax? Are the shares being disposed of excluded property?

Position: The disposition is not subject to Canadian tax. The shares are excluded property.

Reasons:	Paragraph 5 of Article 13 of the Canada-Finland Treaty provides that the disposition of shares will not be taxable in Canada.
		The shares are excluded property by virtue of the definition thereof in subsection 116(6) of the Act. 

XXXXXXXXXX 								2005-014825

XXXXXXXXXX, 2005

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Advance Income Tax Ruling

This is in response to your XXXXXXXXXX request for an advance income tax ruling on behalf of the above taxpayers.

Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supplement), c.1, as amended, (the "Act") to the date of this advance income tax ruling and all terms and conditions used herein that are defined in the Act have the meaning given in such definitions unless otherwise indicated.

Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:

Definitions

(a) "Mr. X" is XXXXXXXXXX;

(b) "Parent" is XXXXXXXXXX;

(c) "ForeignSub" is XXXXXXXXXX;

(d) "CanSub" is XXXXXXXXXX.;

(e) "Foreign Jurisdiction" is Finland;

(f) "Stock Exchange" is the XXXXXXXXXX Stock Exchange;

(g) "adjusted cost base", "capital property" and "proceeds of disposition" have the meaning assigned by section 54 of the Act;

(h) "Canadian corporation", "public corporation" and "taxable Canadian corporation" have the meaning assigned by subsection 89(1) of the Act;

(i) "excluded property" has the meaning assigned by subsection 116(6) of the Act;

(j) "disposition", "taxable Canadian property" and "treaty-protected property" have the meaning assigned by subsection 248(1) of the Act; and

(k) "Treaty" means the Convention between Canada and Finland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion With Respect to Taxes on Income, which was signed on May 28, 1990 and came into force on August 20, 1992.

Facts

1. Parent is a corporation incorporated under the laws of the Foreign Jurisdiction and is resident of the Foreign Jurisdiction for the purposes of the Treaty. Parent and its subsidiaries operate in a number of countries worldwide and comprise XXXXXXXXXX

2. Parent has never carried on business in Canada and has never filed income tax returns in Canada. Accordingly, Parent does not have a Business Number.

3. Mr. X beneficially owns or controls a majority of the shares of Parent.

4. ForeignSub is a wholly-owned subsidiary of Parent and is a corporation that is a resident of, and incorporated under the laws of, the Foreign Jurisdiction.

5. CanSub is a taxable Canadian corporation and a public corporation. CanSub has XXXXXXXXXX issued and outstanding common shares listed on the Stock Exchange, which is a "prescribed stock exchange" described in section 3200 of the Income Tax Regulations. The authorized share capital of CanSub consists of an unlimited number of common shares.

6. Parent owns XXXXXXXXXX (approximately XXXXXXXXXX%) of the issued and outstanding common shares of CanSub (hereinafter referred to as the "Shares"). The Shares of CanSub are taxable Canadian property and treaty-protected property to Parent.

7. CanSub and its subsidiaries manufacture and distribute XXXXXXXXXX CanSub has agreed to sell a business line of its XXXXXXXXXX operations and plans to consolidate the remaining business lines into its XXXXXXXXXX manufacturing facilities. Upon the completion of this sale and the subsequent consolidation of its other manufacturing activities, expected to occur in XXXXXXXXXX, CanSub will dispose of its manufacturing plant in XXXXXXXXXX. All of the "immovable property", as defined in paragraph 2 of Article 6 of the Treaty, owned by CanSub, and by each of its subsidiaries, is used in the manufacturing business carried on by each of them and is not rental property.

8. We understand that, to the best of your knowledge and that of the above taxpayers, none of the issues involved in the ruling request:

(i) is in an earlier return of the taxpayers or a related person,

(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayers or a related person,

(iii) is under objection by the taxpayers or a related person,

(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, or

(v) is the subject of a ruling previously issued by this Directorate.

9. The proposed transactions are not expected to have an impact on any of Parent's, ForeignSub's or CanSub's Canadian income tax liabilities.

Proposed Transactions

10. Parent will sell the Shares to ForeignSub for proceeds of disposition equal to the fair market value of the Shares on the date of disposition. Parent will receive, as consideration for the Shares disposed of, a loan receivable from ForeignSub.

11. After completion of the above proposed transaction, Parent, as a non-resident corporation, will file an income tax return with, and deal with, the International Tax Services Office in Ottawa.

Purpose of the Proposed Transactions

The proposed transaction is part of a larger reorganization of the ownership of the XXXXXXXXXX industry related assets controlled by the Parent. The overall reorganization will result in the transfer of all of the XXXXXXXXXX industry related assets from Parent to ForeignSub. This will facilitate the development of the "XXXXXXXXXX" business by ForeignSub.

Rulings

Provided that:

(a) the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions;

(b) the proposed transactions are completed in the manner described above; and

(c) there are no other transactions which may be relevant to the rulings requested,

our rulings are as follows:

A. Any gain realized by Parent on the transfer of the Shares to ForeignSub will not be subject to Canadian income tax in accordance with the provisions of paragraph 5 of Article 13 of the Treaty.

B. Parent will be considered to have disposed of taxable Canadian property on the sale of the Shares to ForeignSub. However, for purposes of section 116 of the Act, the Shares are excluded property. Therefore, subsection 116(3) of the Act will not apply to Parent and subsection 116(5) of the Act will not apply to impose any liability on ForeignSub as a result of the sale of the Shares.

These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued by the Canada Revenue Agency ("CRA") on May 17, 2002, and are binding on the CRA provided that the proposed transactions are completed before XXXXXXXXXX.

These rulings are based on the Act in its present form and do not take into account any proposed amendments to the Act which, if enacted, could have an effect on the rulings provided herein.

Except as expressly stated, this advance income tax ruling does not imply acceptance, approval or confirmation of any other income tax implications of the facts or proposed transactions.

This letter is based solely on the facts and proposed transactions described above. For greater certainty, the CRA has not reviewed whether the gain from the alienation of the Shares is from property that consists principally of immovable property, for purposes of paragraph 4 of Article 13 of the Treaty, situated in Canada.

Yours truly,

XXXXXXXXXX
for Director
International & Trusts Division
Income Tax Rulings Directorate
Policy and Planning Branch