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: Whether a distribution of property on a PUC reduction by a public company is subject to the provisions of subsection 84(2).
Position: Yes.
Reasons: The distribution of property is done on a reorganization of XXXXXXXXXX/Opco's business.
XXXXXXXXXX
XXXXXXXXXX 2000-001444
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX ("XXXXXXXXXX/Opco")
This is in reply to your letters of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer.
To the best of your knowledge and that of XXXXXXXXXX/Opco, none of the issues raised in this Ruling:
(a) is identified in an earlier tax return of XXXXXXXXXX/Opco or of a related person;
(b) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of XXXXXXXXXX/Opco or of a related person;
(c) is under objection by XXXXXXXXXX/Opco or by a related person;
(d) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired; or
(e) is the subject of a ruling previously issued by the Income Tax Rulings Directorate of the Canada Customs and Revenue Agency issued to XXXXXXXXXX/Opco or a related person.
Unless otherwise noted, all statutory references herein are to the Income Tax Act, R.S.C. 1985, c. 1 (5th Supp.), as amended (hereinafter referred to as the "the Act").
Definitions
In this letter, the following terms have the meanings specified:
"adjusted cost base" has the meaning ascribed to it by section 54;
"fiscal period" has the meaning assigned by subsection 249.1(1);
"XXXXXXXXXX/Opco Shareholders" refers to the holders of the common shares of XXXXXXXXXX/Opco;
"paid-up capital" has the meaning ascribed to it by subsection 89(1);
"private corporation" has the meaning ascribed to it by subsection 89(1);
"public corporation" has the meaning ascribed to it by subsection 89(1);
"Regulation" refers to the Income Tax Regulations, C.R.C, c. 945, as amended; and
"taxable Canadian corporation" has the meaning assigned by subsection 89(1).
Our understanding of the facts, proposed transactions and purposes of the proposed transactions is as follows:
Facts
1. XXXXXXXXXX/Opco is a taxable Canadian corporation, which was incorporated under the Canada Business Corporations Act ("CBCA") by certificate of incorporation issued on XXXXXXXXXX/Opco has ownership interests in various subsidiaries and partnerships that are located in Canada, the U.S. and other countries.
2. XXXXXXXXXX/Opco is listed on the XXXXXXXXXX. Consequently, XXXXXXXXXX/Opco is a public corporation for the purposes of the Act.
3. XXXXXXXXXX/Opco's federal tax account number is XXXXXXXXXX. Its tax affairs are administered by the XXXXXXXXXX Tax Services Office, and it files its tax returns at the XXXXXXXXXX Taxation Centre. Its fiscal period ends on XXXXXXXXXX, and its mailing address is XXXXXXXXXX.
4. XXXXXXXXXX/Opco's authorized share capital consists of an unlimited number of common shares without par value. As at XXXXXXXXXX common shares of XXXXXXXXXX/Opco were issued and are outstanding. No other shares are either issued or outstanding. XXXXXXXXXX/Opco has XXXXXXXXXX preferred shares authorized but no shares are currently outstanding.
5. The issued and outstanding common shares as at XXXXXXXXXX have a stated capital of at least $XXXXXXXXXX. The paid-up capital for income tax purposes is at least $ XXXXXXXXXX. No amount of the paid-up capital has resulted directly or indirectly from its 1971 capital surplus on hand, as that expression was previously defined by paragraph 89(1)(l).
6. To the best knowledge of XXXXXXXXXX/Opco, none of the XXXXXXXXXX/Opco Shareholders that is a Canadian corporation is connected to XXXXXXXXXX/Opco for the purpose of Part IV of the Act. Consequently, any dividend received by one of these corporate shareholders would be subject to the Part IV tax.
7. Summary Description of the XXXXXXXXXX Businesses
XXXXXXXXXX Opco's principal businesses that are conducted either by XXXXXXXXXX/Opco directly or through a number of Canadian and US subsidiaries include:
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
8. The XXXXXXXXXX Business
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
9. XXXXXXXXXX Business
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
10. The XXXXXXXXXX Business
XXXXXXXXXX.
XXXXXXXXXX.
XXXXXXXXXX.
XXXXXXXXXX.
XXXXXXXXXX.
XXXXXXXXXX.
XXXXXXXXXX.
XXXXXXXXXX.
XXXXXXXXXX.
11. XXXXXXXXXX.
12. XXXXXXXXXX.
13. XXXXXXXXXX, a Canadian corporation was incorporated under the CBCA on XXXXXXXXXX.
14. XXXXXXXXXX, a Canadian company was incorporated under the CBCA on XXXXXXXXXX.
15. XXXXXXXXXX, a Canadian company incorporated under the XXXXXXXXXX Companies Act, XXXXXXXXXX.
16. Usub1, a U.S. holding company incorporated in XXXXXXXXXX.
17. GP, a US holding company incorporated in XXXXXXXXXX, holds a XXXXXXXXXX% interest in XXXXXXXXXX (the "Partnership").
18. LP, a US holding company incorporated in XXXXXXXXXX, holds a XXXXXXXXXX% interest in Partnership.
19. Partnership, a US partnership formed in XXXXXXXXXX.
20. Cal1, a US holding company incorporated in XXXXXXXXXX, holds a XXXXXXXXXX% interest in XXXXXXXXXX.
21. Cal2, a US holding company incorporated in XXXXXXXXXX, holds a XXXXXXXXXX% interest in XXXXXXXXXX.
22. MT, a US limited Liability corporation formed in XXXXXXXXXX.
23. ST, a US limited liability corporation formed in XXXXXXXXXX.
24. NY1, a US holding company incorporated in XXXXXXXXXX, holds a XXXXXXXXXX% interest in XXXXXXXXXX.
25. NY2, a US holding company incorporated in XXXXXXXXXX, holds a XXXXXXXXXX% interest in XXXXXXXXXX.
26. NT, a US limited liability corporation formed in XXXXXXXXXX.
27. OEI, a US holding company incorporated in XXXXXXXXXX, holds a XXXXXXXXXX% interest in XXXXXXXXXX.
28. XXXXXXXXXX.
29. Numberco, a Canadian company was incorporated under the XXXXXXXXXX.
29A. XXXXXXXXXX.
XXXXXXXXXX.
Proposed Transactions
In general terms, the proposed transactions contemplate XXXXXXXXXX/Opco or a company related to XXXXXXXXXX/Opco transferring in a taxable transaction all of the assets (including XXXXXXXXXX, shares of subsidiaries and partnership interests) used in The XXXXXXXXXX Business to Newco. XXXXXXXXXX/Opco will then distribute at least XXXXXXXXXX% of the Newco shares to the XXXXXXXXXX/Opco Shareholders.
30. Cal1 and Cal2, will liquidate with and into Newco.
31. Usub1 will transfer the stock in XXXXXXXXXX to Newco in consideration for additional shares of Newco.
32. Usub1 will distribute the stock in Newco to XXXXXXXXXX/Opco by means of a dividend.
33. XXXXXXXXXX will sell, at fair market value, its business assets to Newco in consideration for Newco shares. Newco will then carry on through a XXXXXXXXXX the business activities formerly conducted by XXXXXXXXXX.
34. XXXXXXXXXX will then wind up into XXXXXXXXXX/Opco under the provisions of subsection 88(1).
35. XXXXXXXXXX/Opco will sell to Newco, at fair market value, the stock in the following Canadian subsidiaries: (i) XXXXXXXXXX; and (ii) its XXXXXXXXXX interest in Numberco. XXXXXXXXXX/Opco will receive additional shares of Newco as consideration for the sale.
36. Sub1 will sell to Newco, at fair market value, the operating leases in the XXXXXXXXXX situated in the following cities: XXXXXXXXXX. Sub1 will receive shares of Newco as consideration for the sale.
37. Sub1 will distribute the stock of Newco to XXXXXXXXXX/Opco by means of a dividend.
38. Most employees of Sub1 and affiliated companies employed in its XXXXXXXXXX Business will terminate their employment with Sub1 or its affiliated companies and become employed by Newco.
39. XXXXXXXXXX/Opco may provide additional working capital to Newco.
40. XXXXXXXXXX/Opco will distribute at least XXXXXXXXXX of the total stock of Newco by means of a pro-rata distribution to each of the XXXXXXXXXX/Opco Shareholders, and XXXXXXXXXX/Opco will retain not more than XXXXXXXXXX of Newco.
41. XXXXXXXXXX/Opco will distribute the Newco shares to the XXXXXXXXXX/Opco shareholders as a reduction of the legal stated capital account of the XXXXXXXXXX/Opco common shares by an amount equal to the fair market value of the Newco shares distributed.
42. Newco will obtain a listing on a XXXXXXXXXX stock exchange as soon as practical.
43. XXXXXXXXXX.
Purpose of the Proposed Transactions
44. The proposed transactions will separate the XXXXXXXXXX Business from the XXXXXXXXXX Business, resulting in two publicly traded companies. The primary business purposes for the proposed transactions are: XXXXXXXXXX.
Rulings
Provided that the above statements are accurate and constitute a complete and accurate disclosure of all of the relevant facts, purposes of the proposed transactions and proposed transactions, we confirm the following:
A. Subsection 84(2) will only apply to deem the distribution of the Newco shares to the XXXXXXXXXX/Opco Shareholders to be a dividend to the extent the fair market value of the distributed shares exceeds the paid-up capital reduction of the XXXXXXXXXX/Opco common shares.
B. Subsection 84(4.1) will not apply to deem the XXXXXXXXXX/Opco Shareholders to receive a taxable dividend on the reduction of the paid-up capital of the XXXXXXXXXX/Opco common shares.
C. The amount received by an XXXXXXXXXX/Opco Shareholder in respect of the reduction of the paid-up capital of the XXXXXXXXXX/Opco common shares will, by virtue of subparagraph 53(2)(a)(ii), be deducted in calculating the adjusted cost base of the XXXXXXXXXX/Opco common shares to such shareholder.
D. Subsection 15(1) will not apply to include any amount distributed to an XXXXXXXXXX/Opco Shareholder on a reduction of paid-up capital of the XXXXXXXXXX/Opco common shares, or deemed to be a dividend pursuant to subsection 84(2), in computing the income of an XXXXXXXXXX/Opco Shareholder for the year.
E. Subsection 246(1) will not apply to deem a benefit to have been conferred on an XXXXXXXXXX/Opco Shareholder solely as a consequence of the amount distributed to the XXXXXXXXXX/Opco Shareholder on a reduction of paid-up capital of the XXXXXXXXXX/Opco common shares.
F. Subsection 245(2) will not be applied to the proposed transactions, in and by themselves, to redetermine the tax consequences confirmed in the rulings given.
These rulings are given subject to the limitations and qualifications set forth in Information Circular 70-6R3 issued on December 30, 1996, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.
The above rulings are based on the Act in its present form an do not take into account any proposed amendment to the Act which, if enacted, could have an effect on the rulings given.
Nothing in this ruling should be construed as implying that the Canada Customs and Revenue Agency has reviewed, accepted or otherwise agreed to:
(a) the determination of the adjusted cost base, the fair market value or the paid-up capital of any shares referred to herein; or
(b) any tax consequences relating to the facts and proposed transactions described herein other than those specifically described in the rulings given above.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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