Income Tax Severed Letters - 2008-07-11

Principal Issues: In a recapitalization of a Pubco contemplated by a plan of arrangement where the debts forgiveness occurs immediately before the acquisition of control, 1) Whether the settlement of notes will result in a forgiven amount equal to the lesser of the amount for which the notes were issued and their principal amount, minus the fair market value of the Newpubco shares delivered; 2) Whether the amount of the excess described in paragraph 13(21.2)(b) in respect of depreciable properties transferred to an affiliated person will be deemed to be a property owned until the time that is immediately before the time that is immediately before the acquisition of control time; 3) Whether paragraph 111(4)(d) will apply to deem each amount required by paragraph 111(4)(c) to be deducted in computing the adjusted cost base to Debtor of a property to be a capital loss of Debtor for the acquisition of control taxation year from the disposition of property.

Position: 1) to 3) Yes.

Reasons: 1) The Newpubco shares will be delivered in satisfaction of the principal amount of the notes; 2) and 3) The ordering of the series of transactions respects the law.

Principal Issues: Whether certain income to be earned by a foreign affiliate of Parent will be income from a business other than an active business pursuant to paragraph 95(2)(a.3) of the Act.

Position: No.

Reasons: The income will fall within the subsection 95(2.4) exception to paragraph 95(2)(a.3) of the Act.

Principal Issues: (A) Is a particular plan an employee benefit plan for purposes of 248(1) of the Income Tax Act? (B) Is a particular plan a salary deferral arrangement? (C) Have participants of the plan received an employment benefit by virtue of their interest holdings in the trust pursuant to paragraph 6(1)(a) of the Income Tax Act? (D) Are reasonable admin expenses incurred by the plan deductible by the trust? (E) Will the provisions of 104(6)(a.1) apply to the trust with respect to amounts paid to employees? (F) Will employer contributions be deductible by the employer pursuant to subsection 32.1? (G) Will distributions from the plan be subject to 6(1)(g)?

Position: (A) Yes (B) No (C) No (D) Yes, subject to section 67 (E) Yes (F) Yes (G) Yes

Reasons: (A) wording of the definition of an EBP (B) wording of the definition of a SDA (C) paragraph 6(1)(a) benefits exclude benefits under an EBP (D) The legislation provides for deduction of reasonable administrative expenses within the trust provided the expenses were incurred to earn income under paragraph 18(1)(a) of the Act (E) wording of the legislation (F) plan is an EBP, therefore subsection 32.1(1), 32.1(2) and 32.1(3) of the Act will apply to the employer (G) wording of paragraph 6(1)(g)