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: Income tax implications to Canco and an existing Canco warrant holder when NewCanco common shares are delivered to such holder by Canco pursuant to the NewCanco warrant agreement between Canco and NewCanco.
Position: Canco will receive POD equal to the FMV of the NewCanco Common Shares at the time they are so disposed of to the extent that such POD are not already recognized. A Canco warrant holder receiving NewCanco common shares will generally not have a 15(1) benefit equal to the FMV of those shares at that time if they were dealing at arm's length with Canco and NewCanco.
Reasons: Based on the law.
XXXXXXXXXX
XXXXXXXXXX 2000-002197
XXXXXXXXXX
Attention: XXXXXXXXXX
XXXXXXXXXX, 2000
Dear Sirs:
Re: XXXXXXXXXX ("Canco") et al
Advance Income Tax Ruling #2000-001135 - XXXXXXXXXX, 2000 (the "Ruling")
This is in reply to your facsimile request dated XXXXXXXXXX, wherein you requested confirmation of certain income tax consequences to Canco and the Canco warrant holders that may arise as a consequence of the NewCanco warrant agreement between Canco and Newco as described in paragraph 21 of the Ruling. For the purposes of this letter any term defined in the Ruling will have the same meaning herein.
The first opinion you request is that Canco's proceeds of disposition ("POD") in respect of any NewCanco Common Shares it must deliver to an existing Canco warrant holder under the NewCanco warrant agreement as described in paragraph 21 of the Ruling, shall not exceed a reasonable allocation of the sum of:
(a) the consideration that Canco received from the particular Canco warrant holder at the time such Canco warrant was issued to such Canco warrant holder by Canco (i.e., the "issue price"); plus
(b) the additional consideration that such Canco warrant holder may be required to pay to Canco at the time such Canco warrants are exercised (the "exercise price").
The second opinion you request is that a Canco warrant holder will not be considered to have received a taxable benefit under subsection 15(1) when such warrant holder receives any NewCanco Common Share from Canco under the circumstances described above.
In consideration of this request you advise that while certain of the proposed transactions described in the Ruling may have already commenced or been completed the proposed transactions described in paragraph 21 of the Ruling have not yet occurred.
Provided that the statements described in the Ruling represent a complete and accurate description of the relevant facts, proposed transactions and purpose of the proposed transactions and the proposed transactions are completed as described in the Ruling, it is our opinion that:
1. At the time Canco disposes of a NewCanco Common Share to a Canco warrant holder who exercises his/her existing Canco warrant as described in paragraph 21 of the Ruling, subsection 69(4) will apply to deem Canco to have received POD equal to the fair market value of the Newco Common Share so disposed of to such holder at that time to the extent that Canco's POD as otherwise determined under the Act are less than the fair market value of the NewCanco Common Share so disposed of by Canco at that time.
2. Provided that a Canco warrant holder described in paragraph 8 of the Ruling was dealing at arm's length with Canco at the time such holder acquired his/her Canco warrants from Canco and at the time any such holder acquires NewCanco Common Shares from Canco as described in 21 above, subsection 15(1) will not apply to the exercise of such warrant.
These opinions are given in accordance with the position outlined in paragraph 22 of Information Circular 70-6R3.
Yours truly,
for Director
Reorganizations and International Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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