1999 Ruling 9902383 - REORGANIZATION

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 Department.

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

Principal Issues: no contentious issues

Position:

Reasons:

XXXXXXXXXX
XXXXXXXXXX 1-990238
XXXXXXXXXX

Attention: XXXXXXXXXX

XXXXXXXXXX, 1999

Dear Sirs:

Re: Advance income tax ruling #3-972200
dated XXXXXXXXXX, 1998 as amended by
supplemental ruling #1-982745 dated
XXXXXXXXXX, 1998 (the “Ruling”)

This is in response to your letter of XXXXXXXXXX wherein you informed us of certain changes in the facts and proposed transactions described in the Ruling and requested an extension of the time required for the completion of the proposed transactions. As a result, the following changes are made to the Ruling.

1. The following will be added as paragraph 18A of the Ruling.

“18A. XXXXXXXXXX Class A shares of Holdco 5 owned by Holdco 2 will be transferred on a section 85 rollover to Holdco 1 and the cross-shareholdings between Holdco 1 and Holdco 2 will be eliminated by purchase for cancellation or redemption, as the case may be. This will be accomplished as follows:

(a) The share capital of Holdco 1 will be amended by creating a class of XXXXXXXXXX preferred shares issuable in series at a par value of $XXXXXXXXXX per share and the XXXXXXXXXX common shares with a par value of $XXXXXXXXXX per share, XXXXXXXXXX shares of which are issued and outstanding and beneficially owned by Father, will be split on aXXXXXXXXXX basis so that Holdco 1 will have on and after the foregoing:

(i) XXXXXXXXXX common shares with a par value of $XXXXXXXXXX per share, XXXXXXXXXX of which will be issued and outstanding and beneficially owned by Father;

(ii) XXXXXXXXXX% non-voting preferred shares with a par value of $XXXXXXXXXX per share, redeemable/retractable at par value, XXXXXXXXXX of which are issued and outstanding and beneficially owned by Father;

(iii) XXXXXXXXXX% non-voting preferred shares with a par value of $XXXXXXXXXX per share, redeemable/retractable at par value, XXXXXXXXXX of which are issued and outstanding and beneficially owned by Father; and

(iv) XXXXXXXXXX special preferred shares with a par value of $XXXXXXXXXX per share, issuable in series.

(b) The share capital of Holdco 2 will be amended by splitting the existing common shares on a XXXXXXXXXX basis so that on and after the foregoing, the share capital of Holdco 2 will consist of XXXXXXXXXX common shares with a par value of $XXXXXXXXXX per share, XXXXXXXXXX of which will be issued and outstanding and beneficially owned by Father.

(c) Father will transfer, at fair market value, to Holdco 1 that percentage of the common shares of Holdco 2 having a fair market value equal to the fair market value of the XXXXXXXXXX Class A shares of Holdco 5 being transferred to Holdco 1 by Holdco 2. As sole consideration therefor, Father will receive from Holdco 1, common shares with a par value of $XXXXXXXXXX per share. Father and Holdco 1 will jointly elect in accordance with the provisions of subsection 85(1) and within the time referred to in subsection 85(6), such that the common shares of Holdco 2 will be transferred to Holdco 1 at an agreed amount equal to the ACB of the common shares of Holdco 2 to Father, which amount will be less than the fair market value of such shares. The aggregate addition to the paid-up capital in respect of the common shares with a par value of $XXXXXXXXXX per share of Holdco 1 so issued will not exceed the ACB of the common shares of Holdco 2 to Father being transferred to Holdco 1.

(d) Holdco 2 will transfer, at fair market value, to Holdco XXXXXXXXXX Class A shares of Holdco 5 and, as sole consideration therefor, Holdco 1 will issue to Holdco XXXXXXXXXX % non-cumulative special preferred shares, Series I, having an aggregate redemption and retraction price equal to the fair market value of the XXXXXXXXXX Class A shares of Holdco 5 being transferred to Holdco 1. The share conditions of the special preferred shares will contain a price adjustment clause to ensure that their value is equal to the value of the assets received as consideration for their issue. Holdco 2 and Holdco 1 will jointly elect in accordance with the provisions of subsection 85(1) and within the time referred to in subsection 85(6), such that the XXXXXXXXXX Class A shares of Holdco 5 will be transferred to Holdco 1 at an agreed amount equal to the ACB of the XXXXXXXXXX Class A shares to Holdco 2, which amount will be less than the fair market value of such shares. The aggregate addition to the paid-up capital in respect of the XXXXXXXXXX % special preferred shares of Holdco 1 so issued will not exceed the ACB of the Class A shares of Holdco 5 to Holdco 2 being transferred to Holdco 1.

(e) Holdco 2 will purchase for cancellation, at fair market value, the common shares of Holdco 2 held by Holdco 1 in exchange for a demand non-interest-bearing promissory note payable to Holdco 1, having a principal amount equal to the fair market value of the shares so purchased from Holdco 1.

(f) Holdco 1 will redeem, at the aggregate redemption price, the special preferred shares, Series I, issued to Holdco 2 in exchange for a demand non-interest-bearing promissory note payable to Holdco 2, having an aggregate principal amount equal to the fair market value of the shares being redeemed.

(g) The demand non-interest bearing notes between Holdco 1 and Holdco 2 will be set off and canceled without further payment.

In this manner, the XXXXXXXXXX Class A shares of Holdco 5 will be removed from Holdco 2 and placed in Holdco 1. Father will remain the sole shareholder of Holdco 1 following the redemption and purchase for cancellation described in paragraphs (e) and (f) above, respectively.”

2. The following will be added as paragraph 19A. of the Ruling.

“19A. Holdco 3 will reduce the aggregate paid-up capital of the XXXXXXXXXX% preferred shares of Holdco 3 issued to Father by an aggregate amount of $XXXXXXXXXX or $XXXXXXXXXX per share without the payment of any consideration whatsoever pursuant to the Companies Act. Following the reduction, the aggregate paid-up capital of the preferred shares will be $XXXXXXXXXX or $XXXXXXXXXX per share.”

3. The following changes will be made to paragraph 16 of the Ruling.

(a) subparagraph (a) is cancelled and replaced with “(a) XXXXXXXXXX Class A par value common shares;”;

(b) subparagraph (b) is cancelled and replaced with “(b) XXXXXXXXXX Class B par value common shares;”;

(c) the amount of XXXXXXXXXX in subparagraph (d) is changed to XXXXXXXXXX; and

(d) the third part of the paragraph is cancelled and replaced with “The capital stock of S2 Holdco will be identical to the capital stock of S1 Holdco except that the par value of the Class A and Class B common shares will differ.”

4. The last sentence in each of subparagraphs 19(a), 19(b), 20(b), 20(e), 22(a) and 22(c) is deleted.

5. Ruling A will be amended to include a reference to the transfers described in subparagraphs 18A(c) and 18A(d).

6. Ruling B will be amended to include a reference to the purchase for cancellation and redemption described respectively in subparagraphs 18A(e) and 18A(f).

7. Ruling E will be deleted and replaced with the following:

“The application of paragraph 84.1(1)(a) to the transactions described in subparagraphs 18A(c), 19(a), 19(b), 20(a), 20(b), 20(d), 20(e), 22(a), 22(c), 23(a), 23(b), 23(g) and 23(h) and paragraph 21 above will result in a reduction of the PUC of the shares in the capital stock of the transferee corporations that were received by the transferor corporations as consideration for such transfers, equal to the portion thereof, if any, that exceeds the amount represented by the letter “B” in the formula in paragraph 84.1(1)(a). The application of paragraph 84.1(1)(b) to the transactions described herein will not result in an immediate deemed dividend to Father, Sibling 1, Sibling 2 or the Trust.”

8. Ruling M will be amended to include a reference to the cancellation of notes described in subparagraph 18A(g).

9. The following will be added as Ruling O of the Ruling.

“O. The reduction in the PUC of the XXXXXXXXXX% preferred shares of Holdco 3 without payment of any consideration described in paragraph 19A above will not result in a dividend deemed to be paid by Holdco 3 or received by Father pursuant to subsection 84(4) on such reduction of PUC and subparagraph 53(2)(a)(ii) will not apply to reduce the ACB to Father of his XXXXXXXXXX% preferred shares of Holdco 3.”

10. The first sentence of Comment #3 will be amended to include a reference to the price adjustment clause described in subparagraph 19A(d).

You have advised us that there have not been any other changes to the relevant facts and proposed transactions described in the Ruling.

Subject to the conditions stated therein, we confirm that the Ruling will continue to be binding on Revenue Canada provided that the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

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

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