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:
1. Interest deductibility on (i) funds borrowed to make capital contribution to partnership; (ii) to return share capital; and (iii) repay existing debt.
2. Loss consolidation with related corporation.
3. Will the holding of note re: loss consolidation arrangement disqualify corporation from being a "principal business corporation" as described in reg. 1100(26)(a).
4. Partnership will repurchase an option previously granted to a third-party to purchase depreciable property. Cost of repurchase will be added to the UCC of the property.
Position: OK
Reasons:
1. (i) T/P will earn income from partnership in excess of interest expense; (ii) not in excess of stated capital; and (iii) ss 20(3)
2. Dividends received are in excess of interest expense.
3. Referred to Partnership group for consideration - they concluded that a loss consolidation arrangement should not disqualify the corporation from being a "principal business corporation".
4. OK - Referral to XXXXXXXXXX to Policy Review Committee.
XXXXXXXXXX 991460
Attention: XXXXXXXXXX
XXXXXXXXXX, 1999
Dear Sirs:
Re: XXXXXXXXXX
XXXXXXXXXX
We are writing in response to your correspondence of XXXXXXXXXX in which you had requested an advance income tax ruling on behalf of the above-referenced corporation. We also acknowledge our (XXXXXXXXXX) various telephone conversations and your additional submissions in furtherance of this matter.
You have advised that, to the best of the knowledge of responsible officials of XXXXXXXXXX, none of the issues involved in this request for an advance income tax ruling is being considered by a Tax Services Office or Taxation Centre of Revenue Canada in connection with a return already filed nor are any of these issues under objection or appeal.
In this ruling:
"ACO" refers to XXXXXXXXXX;
"BCO" refers XXXXXXXXXX;
"CCO" refers to XXXXXXXXXX;
"DCO" refers to XXXXXXXXXX;
"ECO" refers to XXXXXXXXXX;
"LP" refers to XXXXXXXXXX;
and
the "PARTNERSHIP" refers to the XXXXXXXXXX.
FACTS
1. ACO was formed under the Company Act (XXXXXXXXXX) on XXXXXXXXXX. ACO is both a "public corporation" and a "taxable Canadian corporation" as those terms are defined in subsection 89(1) of the Income Tax Act (the "Act").
XXXXXXXXXX
2. DCO was formed under the Canada Business Corporations Act on XXXXXXXXXX. It is a wholly-owned subsidiary of ACO.
XXXXXXXXXX
3. ECO was formed under the Company Act (XXXXXXXXXX). It is a wholly-owned subsidiary of ACO.
XXXXXXXXXX
4. BCO was formed under the Company Act (XXXXXXXXXX) by amalgamation on XXXXXXXXXX. BCO is a wholly owned subsidiary of ACO and is a "taxable Canadian corporation", as that term is defined in subsection 89(1) of the Act.
The issued share capital of BCO consists of XXXXXXXXXX common shares. The "adjusted cost base", within the meaning of that term in section 54 of the Act, of the shares of BCO to ACO is $XXXXXXXXXX. The "paid-up capital", as that term is defined in subsection 89(1) of the Act, of such shares is $XXXXXXXXXX.
The property of BCO consists of working capital, shares of CCO as described in paragraph 5, below, and an interest in a limited partnership as described in paragraph 6, below.
5. CCO was formed under the Company Act (XXXXXXXXXX) on XXXXXXXXXX. CCO is a "taxable Canadian corporation", as that term is defined in subsection 89(1) of the Act.
The issued share capital of CCO consists of XXXXXXXXXX common shares, all of which are currently held by BCO.
The only significant assets of CCO are its interest in the PARTNERSHIP and cash that it has received from the PARTNERSHIP.
CCO has non-capital loss carry-forwards of approximately $XXXXXXXXXX as at the end of its XXXXXXXXXX taxation year.
6. The PARTNERSHIP was formed under the Partnership Act (XXXXXXXXXX ) on XXXXXXXXXX and its fiscal year ends on XXXXXXXXXX.
The capital of the PARTNERSHIP is divided into XXXXXXXXXX units (the "PARTNERSHIP Units").
The general partner of the PARTNERSHIP is CCO which holds XXXXXXXXXX PARTNERSHIP Units.
The sole limited partner of the PARTNERSHIP is BCO which holds XXXXXXXXXX PARTNERSHIP Units.
Cash distributions from the PARTNERSHIP are made to the holders of the PARTNERSHIP Units pro-rata in accordance with the number of the PARTNERSHIP Units held.
The net income or loss for accounting purposes in respect of any fiscal period of the PARTNERSHIP is allocated as at the end of such fiscal period to the holders of the PARTNERSHIP Units pro-rata in accordance with the number of units held.
XXXXXXXXXX
7. $XXXXXXXXXX of the investment of BCO in the PARTNERSHIP and in CCO has been financed by way of borrowings from ACO (the "Acquisition Debt").
As at XXXXXXXXXX, BCO has "limited partnership losses", as that term is defined in subsection 96(2.1) of the Act, in respect of its interest in the PARTNERSHIP of $XXXXXXXXXX. The "adjusted cost base", within the meaning of that term in section 54 of the Act, of the interest of BCO in the PARTNERSHIP is $XXXXXXXXXX and its "at-risk amount", within the meaning of that term in subsection 96(2.2) of the Act, in respect of its interest in the PARTNERSHIP is nil.
8. CCO entered into a contract (the "Contract") with the XXXXXXXXXX on behalf of the PARTNERSHIP whereby the PARTNERSHIP agreed to construct and operate XXXXXXXXXX (the "Plant") XXXXXXXXXX.
XXXXXXXXXX
9. Under the Contract, XXXXXXXXXX has an option (the "Option") to purchase the Plant (excluding the land on which it is situated) at any time during the term of the Contract by paying an amount equal to XXXXXXXXXX rate of XXXXXXXXXX% per annum) of XXXXXXXXXX.
10. The majority of the costs associated with the construction of the Plant were for the acquisition of depreciable property included primarily in Class 34 of Schedule II of the Income Tax Regulations.
11. LP is XXXXXXXXXX established under the laws of the Province of XXXXXXXXXX.
LPSub will be incorporated as a wholly-owned subsidiary of LP. Except as described in the Proposed Transactions, LPSub will have no material assets, liabilities or activities.
12. XXXXXXXXXX has provided confirmation in a letter dated XXXXXXXXXX that DCO currently has the ability to borrow an amount up to $XXXXXXXXXX at an interest rate of XXXXXXXXXX% to XXXXXXXXXX% per annum. Based on this confirmation, it is anticipated that DCO will also have the ability to borrow an amount up to $XXXXXXXXXX on or about XXXXXXXXXX at interest rates in effect at that date.
13. XXXXXXXXXX has provided confirmation in a letter dated XXXXXXXXXX that ECO has the ability to borrow an amount up to $XXXXXXXXXX at interest rates ranging from XXXXXXXXXX% to XXXXXXXXXX%. Based on this confirmation, it is anticipated that ECO will have the ability to borrow an amount up to $XXXXXXXXXX on or about XXXXXXXXXX at interest rates in effect at that date.
PROPOSED TRANSACTIONS
The Proposed Transactions will occur on or prior to the date (the "Closing Date") of the issuance of the LPSub Note, as described in paragraph 17, below.
14. BCO will apply to the appropriate court in XXXXXXXXXX for authorization to reduce and distribute paid-up capital to ACO.
BCO will also apply to the appropriate court in XXXXXXXXXX for authorization to reduce its share capital by the amount of its deficit which, as of the Closing Date, is expected to be less than $XXXXXXXXXX . BCO will not distribute any amount to its shareholder in respect of this reduction in capital.
15. BCO will issue common shares to ACO having a FMV of $XXXXXXXXXX in settlement of the outstanding Acquisition Debt.
16. LP will advance $XXXXXXXXXX to LPSub in consideration for a promissory note (the "LP Note").
The LP Note will mature on XXXXXXXXXX and will bear interest at a rate of XXXXXXXXXX%. Principal repayments will be made until maturity as required by the terms of the LP Note.
The LP Note will have standard covenants, representations, warranties and conditions. The loan agreement will contain the specific term that LP will apply cash flow received by it in the period prior to maturity, first to interest on the LP Note and then to the principal of the LP Note.
17. LPSub will advance $XXXXXXXXXX to BCO in consideration for a promissory note (the "LPSub Note").
The LPSub Note will mature on XXXXXXXXXX and will bear interest at a rate of XXXXXXXXXX% per annum. Principal repayments will be made until maturity as required by the terms of the LPSub Note.
The LPSub Note will have standard covenants, representations, warranties and conditions. The loan agreement will contain the specific term that BCO will apply cash flow received by it from the PARTNERSHIP and from CCO in the period prior to maturity, first to interest on the LPSub Note and then to the principal of the LPSub Note.
ACO will agree (the "Support Agreement") to fund all income and capital taxes which may become owing by BCO or CCO on or after XXXXXXXXXX. The Support Agreement will terminate if ACO ceases to be a shareholder of BCO and LPSub or its affiliate(s) becomes the sole shareholder(s) of BCO. ACO will also agree to ensure that BCO and CCO retain sufficient cash on hand to meet their estimated income and capital tax liabilities for the period prior to XXXXXXXXXX.
The terms of the LPSub Note will provide that the board of directors of BCO and of CCO will be comprised of XXXXXXXXXX members. XXXXXXXXXX members will be appointed by ACO and XXXXXXXXXX members by LPSub including the chairman. The chairman will have a casting vote on all matters except those matters relating to tax issues. On such matters a director appointed by ACO will have a casting vote. In order to meet its obligations as general partner of the PARTNERSHIP to manage and operate the Plant, CCO will enter into a management agreement with LP or an affiliate.
The LPSub Note will be secured by the PARTNERSHIP Units held by BCO and the guarantee of CCO, such guarantee to be secured by the PARTNERSHIP Units held by CCO.
18. BCO will make a capital contribution of $XXXXXXXXXX to the PARTNERSHIP to acquire additional PARTNERSHIP Units at the fair market value thereof at the time of the contribution using a portion of the proceeds from the LPSub Note.
19. XXXXXXXXXX will agree to certain consents, approvals and waivers required in connection with the refinancing of the PARTNERSHIP.
In consideration for the deletion of the Option clause in the Contract, the PARTNERSHIP will pay XXXXXXXXXX in cash using the proceeds of the BCO capital contribution.
XXXXXXXXXX
20. BCO will use the remaining proceeds of the LPSub Note to return paid-up capital of its outstanding common shares to ACO in the amount of $XXXXXXXXXX.
21. ACO will have the right to put all or a portion of the outstanding shares of BCO to LPSub or its assignee at a total aggregate price of $XXXXXXXXXX on or before XXXXXXXXXX ("the Put").
22. A corporation ("Numberco") will be formed under the Company Act (XXXXXXXXXX ) as a wholly-owned subsidiary of ACO.
23. DCO will borrow approximately $XXXXXXXXXX on a daylight loan basis (the "DCO Class A Daylight Loan") from a Canadian chartered bank.
24. DCO will use the proceeds from the DCO Class A Daylight Loan to subscribe for approximately XXXXXXXXXX Class A preferred shares of Numberco (the "Numberco Class A Preferred Shares").
Such preferred shares will have the following rights and restrictions:
a) the shares will be non-voting;
b) entitled to an annual cumulative dividend rate on the amount for which the shares were issued equal to XXXXXXXXXX%;
c) redeemable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
d) retractable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
e) dividends payable and, on winding up, return of paid-up capital will rank ahead of any payment on shares ranking junior;
f) on winding up or dissolution will receive the amount for which the shares were issued and any unpaid cumulative dividends; and
g) will be automatically retracted XXXXXXXXXX days prior to any bankruptcy or insolvency of Numberco.
25. Numberco will use the proceeds from the issuance of the Numberco Class A Preferred Shares to subscribe for approximately XXXXXXXXXX preferred shares of BCO (the "BCO Preferred Shares").
Such preferred shares will have the following rights and restrictions:
a) the shares will be non-voting;
b) entitled to an annual cumulative dividend rate on the amount for which the shares were issued equal to XXXXXXXXXX%;
c) redeemable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
d) retractable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
e) dividends payable and, on winding up, return of capital will rank ahead of any payment on shares ranking junior;
f) on winding-up or dissolution will receive the amount for which the shares were issued and any unpaid cumulative dividends; and
g) will be automatically retracted XXXXXXXXXX days prior to any bankruptcy or insolvency of BCO.
26. BCO will advance the proceeds from the BCO Preferred Shares to Numberco in consideration for a promissory note (the "BCO Note") bearing interest at a rate of XXXXXXXXXX% per annum.
27. Numberco will advance the proceeds from the BCO Note to DCO in consideration for a promissory note (the "DCO Class A Note") bearing interest at a rate of XXXXXXXXXX% per annum.
28. DCO will use the proceeds from the DCO Class A Note to repay the DCO Class A Daylight Loan.
29. On or about XXXXXXXXXX, ECO will borrow approximately $XXXXXXXXXX on a daylight loan basis (the "ECO Daylight Loan") from a Canadian chartered bank.
30. ECO will use the proceeds from the ECO Daylight Loan to subscribe for approximately XXXXXXXXXX Class B preferred shares of Numberco (the "Numberco Class B Preferred Shares").
Such preferred shares will have the following rights and restrictions:
a) the shares will be non-voting;
b) entitled to an annual cumulative dividend rate on the amount for which the shares were issued equal to XXXXXXXXXX%;
c) redeemable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
d) retractable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
e) dividends payable and, on winding up, return of capital will rank ahead of any payment on shares ranking junior;
f) on winding up or dissolution will receive the amount for which the shares were issued and any unpaid cumulative dividends; and
g) will be automatically retracted XXXXXXXXXX days prior to any bankruptcy or insolvency of Numberco.
31. Numberco will use the proceeds from the issuance of the Numberco Class B Preferred Shares to acquire approximately XXXXXXXXXX Class A preferred shares of CCO (the "CCO Class A Preferred Shares").
Such preferred shares will have the following rights and restrictions:
a) the shares will be non-voting;
b) entitled to an annual cumulative dividend rate on the amount for which the shares were issued equal to XXXXXXXXXX%;
c) redeemable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
d) retractable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
e) dividends payable and, on winding up, return of capital will rank ahead of any payment on shares ranking junior;
f) on winding-up or dissolution will receive the amount for which the shares were issued and any unpaid cumulative dividends; and
g) will be automatically retracted XXXXXXXXXX days prior to any bankruptcy or insolvency of CCO.
32. CCO will advance the proceeds from the CCO Class A Preferred Shares to Numberco in consideration for a promissory note (the "CCO Class A Note") bearing interest at a rate of XXXXXXXXXX% per annum.
33. Numberco will advance the proceeds from the CCO Class A Note to ECO in consideration for a promissory note (the "ECO Note") bearing interest at a rate of XXXXXXXXXX% per annum.
34. ECO will use the proceeds of the ECO Note to repay the ECO Daylight Loan.
35. On or about XXXXXXXXXX, BCO will redeem the BCO Preferred Shares held by Numberco by issuing a demand non-interest-bearing note (the "BCO Redemption Note") having a principal amount equal to the issue amount of the BCO Preferred Shares.
36. The BCO Note and the BCO Redemption Note will be set off and cancelled.
37. Numberco will redeem the Numberco Class A Preferred Shares held by DCO by issuing a non-interest bearing note (the "Numberco Class A Redemption Note") having a principal amount equal to the issue amount of the Numberco Class A Preferred Shares.
38. The DCO Class A Note and the Numberco Class A Redemption Note will be set off and cancelled.
39. DCO will borrow approximately $XXXXXXXXXX on a daylight loan basis (the "DCO Class C Daylight Loan") from a Canadian chartered bank.
40. DCO will use the proceeds of the DCO Class C Daylight loan to subscribe for approximately XXXXXXXXXX Class C preferred shares of Numberco (the "Numberco Class C Preferred Shares").
Such preferred shares will have the following rights and restrictions:
a) the shares will be non-voting;
b) entitled to an annual cumulative dividend rate on the amount for which the shares were issued equal to XXXXXXXXXX%;
c) redeemable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
d) retractable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
e) dividends payable and, on winding up, return of capital will rank ahead of any payment on shares ranking junior;
f) on winding up or dissolution will receive the amount for which the shares were issued and any unpaid cumulative dividends; and
g) will be automatically retracted XXXXXXXXXX days prior to any bankruptcy or insolvency of Numberco.
41. Numberco will use the proceeds from the issuance of the Numberco Class C Preferred Shares to subscribe for approximately XXXXXXXXXX Class B preferred shares of CCO (the "CCO Class B Preferred Shares").
Such preferred shares will have the following rights and restrictions:
a) the shares will be non-voting;
b) entitled to an annual cumulative dividend rate on the amount for which the shares were issued equal to XXXXXXXXXX%;
c) redeemable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
d) retractable for an amount equal to the aggregate of the amount for which the shares were issued and any unpaid dividends;
e) dividends payable and, on winding up, return of capital will rank ahead of any payment on shares ranking junior;
f) on winding-up or dissolution will receive the amount for which the shares were issued and any unpaid cumulative dividends; and
g) will be automatically retracted XXXXXXXXXX days prior to any bankruptcy or insolvency of CCO.
42. CCO will advance the proceeds from issuance of the CCO Class B Preferred Shares to Numberco in consideration for a promissory note (the "CCO Class B Note") bearing interest at a rate of XXXXXXXXXX% per annum.
43. Numberco will advance the proceeds from the CCO Class B Note to DCO in consideration for a promissory note (the "DCO Class C Note") bearing interest at a rate of XXXXXXXXXX% per annum.
44. DCO will use the proceeds from the DCO Class C Note to repay the DCO Class C Daylight Loan.
45. The Partnership will make cash distributions to its partners in accordance with the Partnership Agreement.
46. CCO will pay cash distributions received by it from the Partnership to BCO as dividends or non-interest bearing advances.
47. BCO will pay interest to LPSub in respect of the LPSub Note.
48. BCO will repay a portion of the principal of the LPSub Note to the extent that its cash flows from the Partnership and CCO exceed the interest payable on the LPSub Note.
49. DCO will pay interest to Numberco in respect of the DCO Class A Note or DCO Class C Note.
50. Numberco will pay interest to BCO in respect of the BCO Note until approximately XXXXXXXXXX.
51. BCO will pay dividends on the BCO Preferred Shares to Numberco until approximately XXXXXXXXXX.
52. ECO will pay interest to Numberco in respect of the ECO Note.
53. Numberco will pay interest to CCO in respect of the CCO Class A Note and the CCO Class B Note.
54. CCO will pay dividends on the outstanding CCO Class A Preferred Shares and the outstanding CCO Class B Preferred Shares to Numberco.
55. Numberco will pay dividends on the outstanding Numberco Class A Preferred Shares, the outstanding Numberco Class B Preferred Shares and the outstanding Numberco Class C Preferred Shares to DCO and ECO, as applicable.
56. On or before XXXXXXXXXX, CCO will redeem the CCO Class A Preferred Shares held by Numberco by issuing a demand non-interest-bearing note (the "CCO Class A Redemption Note") having a principal amount equal to the issue amount of the CCO Class A Preferred Shares.
57. The CCO Class A Note and the CCO Class A Redemption Note will be set off and cancelled.
58. CCO will redeem the CCO Class B Preferred Shares held by Numberco by issuing a demand non-interest-bearing note (the "CCO Class B Redemption Note") having a principal amount equal to the issue amount of the CCO Class B Preferred Shares.
59. The CCO Class B Note and the CCO Class B Redemption Note will be set off and cancelled.
60. Numberco will redeem the Numberco Class B Preferred Shares held by ECO by issuing a demand non-interest-bearing note to ECO (the "ECO Redemption Note") having a principal amount equal to the issue amount of the Numberco Class B Preferred Shares held by ECO.
61. The ECO Note and the ECO Redemption Note will be set off and cancelled.
62. Numberco will redeem the Numberco Class C Preferred Shares held by DCO by issuing a demand non-interest-bearing note to DCO (the "DCO Class C Redemption Note") having principal amount equal to the issue amount of the Numberco Class C Preferred Shares held by DCO.
63. The DCO Class C Note and the DCO Class C Redemption Note will be set off and cancelled.
64. It is likely that ACO will sell XXXXXXXXXX% of the common shares of BCO to LPSub pursuant to the Put on or before XXXXXXXXXX and by XXXXXXXXXX it is likely that ACO will have exercised the Put to sell all of the shares of BCO to LPSub. At all times while ACO is a shareholder of BCO, ACO will own more than XXXXXXXXXX% of the common shares of BCO.
Rulings Provided
Provided that the above statements of fact are complete and accurate and that the proposed transactions are undertaken as described, the following rulings are provided:
A. Provided that BCO has a legal obligation to pay interest on the LPSub Note, and provided that the PARTNERSHIP Units continue to be held for the purpose of gaining or producing income (other than income that would be exempt) from a business or property, BCO will, pursuant to paragraph 20(1)(c) of the Act, be entitled to deduct in computing its income for a taxation year the lesser of the amount of interest paid or payable in respect of that portion of the funds borrowed pursuant to the LPSub Note which are used to acquire additional units of the Partnership, as described in paragraph 18 of the Proposed Transactions, and which is in respect of that taxation year, or a reasonable amount in respect thereof.
B. Provided that BCO has a legal obligation to pay interest on the LPSub Note and provided that the stated capital of the common shares of BCO which are owned by ACO immediately prior to the reduction of the stated capital of those shares is equal to or greater than the amount paid upon the reduction of the stated capital of those shares, BCO will, pursuant to paragraph 20(1)(c) of the Act, be entitled to deduct in computing its income for a taxation year the lesser of the amount of interest paid or payable in respect of that portion of the funds borrowed pursuant to the LPSub Note which are used to make a payment to reduce the capital of those shares, as described in paragraph 20 of the Proposed Transactions, and which is in respect of that taxation year, or a reasonable amount in respect thereof.
C. Provided that Numberco has a legal obligation to pay interest on the BCO Note and provided that the DCO Class A Note continues to be held by Numberco for the purpose of gaining or producing income from a business or property, Numberco will, pursuant to paragraph 20(1)(c) of the Act, be entitled to deduct in computing its income for a taxation year, the lesser of the interest paid or payable in respect of the BCO Note, or a reasonable amount in respect thereof.
D. Provided that Numberco has a legal obligation to pay interest on the CCO Class A Note and provided that the ECO Note continues to be held by Numberco for the purpose of gaining or producing income from a business or property, Numberco will, pursuant to paragraph 20(1)(c) of the Act, be entitled to deduct in computing its income for a taxation year, the lesser of the interest paid or payable in respect of the CCO Class A Note, or a reasonable amount in respect thereof.
E. Provided that Numberco has a legal obligation to pay interest on the CCO Class B Note and provided that the DCO Class C Note continues to be held by Numberco for the purpose of gaining or producing income from a business or property, Numberco will, pursuant to paragraph 20(1)(c) of the Act, be entitled to deduct in computing its income for a taxation year, the lesser of the interest paid or payable in respect of the CCO Class B Note, or a reasonable amount in respect thereof.
F. Provided that DCO has a legal obligation to pay interest on the DCO Class A Note and provided that the Numberco Class A Preferred Shares continue to be held by DCO for the purpose of gaining or producing income from a business or property, DCO will, pursuant to subsection 20(3) and paragraph 20(1)(c) of the Act, be entitled to deduct in computing its income for a taxation year, the lesser of the interest paid or payable in respect of the DCO Class A Note, or a reasonable amount in respect thereof.
G. Provided that DCO has a legal obligation to pay interest on the DCO Class C Note and provided that the Numberco Class C Preferred Shares continue to be held by DCO for the purpose of gaining or producing income from a business or property, DCO will, pursuant to subsection 20(3) and paragraph 20(1)(c) of the Act, be entitled to deduct in computing its income for a taxation year, the lesser of the interest paid or payable in respect of the DCO Class C Note, or a reasonable amount in respect thereof.
H. Provided that ECO has a legal obligation to pay interest on the ECO Note and provided that the Numberco Class B Preferred Shares continue to be held by ECO for the purpose of gaining or producing income from a business or property, ECO will, pursuant to subsection 20(3) and paragraph 20(1)(c) of the Act, be entitled to deduct in computing its income for a taxation year, the lesser of the interest paid or payable in respect of the ECO Note, or a reasonable amount in respect thereof.
I. A portion of the payment which is made by the PARTNERSHIP to XXXXXXXXXX, as described in paragraph 19 of the Proposed Transactions, and which portion is solely in respect of the deletion of the Option clause may, for the purpose of the definition of "cost amount" in subsection 248(1) of the Act of a property which is the land or which is a particular depreciable property which constitutes a part of the Plant owned by the PARTNERSHIP, be added to the capital cost of that particular property otherwise determined to the extent that the total amount of such portions so added does not exceed the total amount of the payment.
J. No portion of the payment which is made by the PARTNERSHIP to XXXXXXXXXX, as described in Ruling I, above, and which is added to the "cost amount", within the meaning of that term in subsection 248(1) of the Act, of a depreciable property which is included in Class 34 of Scedule II of the Income Tax Regulations will be included by the PARTNERSHIP in the determination of the amount described in subclause 1100(1)(ta)(ii)(A)(ii) for the fiscal period of the PARTNERSHIP in which such amount is so added.
K. For the purpose of paragraph 1100(26)(b) of the Income Tax Regulations, BCO will not be considered to be a corporation other than a corporation described in paragraph (a) thereof solely by virtue of its ownership of the BCO Note.
L. For the purpose of paragraph 1100(26)(b) of the Income Tax Regulations, CCO will not be considered to be a corporation other than a corporation described in paragraph (a) thereof solely by virtue of its ownership of the CCO Class A Note or the CCO Class C Note.
M. Provided that the purpose of the payment of the dividends paid by CCO to BCO, as described in paragraphs 17 and 46 of the Proposed Transactions, in order to fund the interest and principal payments in respect of the LPSub Note is not to reduce the value of the shares of CCO in contemplation of a disposition thereof, subsection 55(2) of the Act will not be applicable with respect to such dividends.
N. Subsection 245(2) of the Act will not be applicable as a result of the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
These rulings are provided subject to the limitations and qualifications set out in Information Circular 70-6R3 issued by Revenue Canada on December 30, 1996 and are binding upon the Department provided that the proposed transactions are completed on or before XXXXXXXXXX. The rulings are based on the Act and the Income Tax Regulations in their present form and do not take into account the effects of any proposed amendments thereto.
We would further note that nothing in this letter should be construed as confirmation that Revenue Canada has reviewed or accepted any tax consequences arising from the facts or proposed transactions described herein other than those specifically confirmed in the rulings provided.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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