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 ISSUE:
Will the amendment of the terms of the Notes constitute a disposition and acquisition of those Notes?
Position:
Amendments to the terms of the Notes do not result in a Disposition.
REASON:
The amendments are to be made by extraordinary resolution. The Trust Indenture empowers note holders to approve, by Extraordinary Resolution, "any change whatsoever in any provisions of" the Trust Indenture.
We have previously provided favorable rulings in similar situations (see for example # 983245 & 970220).
XXXXXXXXXX 2000-006062
XXXXXXXXXX, 2001
Dear Sir:
Re: Advance Income Tax Ruling
XXXXXXXXXX
This is in response to your letter of XXXXXXXXXX, wherein you request an advance income tax ruling on behalf of the above-noted taxpayer. We also acknowledge the information provided in subsequent correspondence and during various telephone conversations in connection with your request (XXXXXXXXXX).
We understand that to the best of your knowledge and that of the taxpayers involved none of the issues involved in the requested ruling:
(i) is in an earlier return of a taxpayer identified in this document or a related person,
(ii) is being considered by any Tax Services Office or Taxation Centre of the Agency in connection with a tax return already filed,
(iii) is under objection by a taxpayer identified in this document or a related person, or
(iv) is the subject of a ruling previously considered by the Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the facts and proposed transactions is as follows:
Facts
1. XXXXXXXXXX (hereinafter "Opco") was incorporated under the Business Corporation Act of the Province of XXXXXXXXXX Opco is a public corporation and a taxable Canadian corporation. Opco's authorized share capital is comprised of an unlimited number of common shares which are listed on the XXXXXXXXXX Stock Exchange. XXXXXXXXXX ("Holdco") owns approximately XXXXXXXXXX% of the issued and outstanding common shares of Opco.
Opco commenced operations in XXXXXXXXXX. Opco either directly or through subsidiaries, finances, constructs and operates XXXXXXXXXX businesses.
On XXXXXXXXXX, Opco completed an initial public offering of units comprising notes (the "Notes") and common shares. Notes having in the aggregate a principal amount of $XXXXXXXXXX were sold as part of such units.
2. Holdco is a public corporation and a taxable Canadian corporation.
On or about XXXXXXXXXX, Holdco subscribed for approximately XXXXXXXXXX% of the issued common shares of Opco and purchased Notes having an aggregate principal amount of $XXXXXXXXXX.
3. The Notes were issued under a trust indenture (the "Trust Indenture") made between Opco and XXXXXXXXXX (the "Trustee"). The principal terms of the Notes and the Trust Indenture are as follows:
(a) The Notes were issued on XXXXXXXXXX and mature on XXXXXXXXXX. Opco is obligated to make principal repayments prior to maturity of, XXXXXXXXXX The outstanding principal balance of the Notes net of the obligatory principal repayments described above is due on maturity.
(b) The Notes bear interest at the rate of XXXXXXXXXX% of the principal amount payable on XXXXXXXXXX of each year.
(c) The Notes represent senior, unsecured debt obligations of Opco, ranking pari passu with all other indebtedness of Opco for borrowed money.
(d) The Trust Indenture contains detailed covenants including covenants restricting the ability of Opco to incur additional indebtedness for borrowed money, to mortgage, pledge or charge its properties to secure any indebtedness, to pay dividends on certain distributions, to complete certain asset sales, to engage in various transactions with affiliates or to effect certain mergers or consolidations. The Trust Indenture contains further provisions in the event of a change of control of Opco or in an event of default by Opco as set out in the Trust Indenture.
(e) Under the terms of the Debentures or any agreement relating thereto, Opco may not under any circumstances be obliged to pay more than XXXXXXXXXX% of the principal amount of the Debentures within XXXXXXXXXX from their date of issue except in the circumstances permitted by subparagraph 212(1)(b)(vii) of the Act.
(f) The Trust Indenture provides that modifications and amendments to it and the Notes may be made if authorized by a resolution passed by holders of not less than XXXXXXXXXX% of the principal amount of all Notes outstanding.
4. The Notes and Trust Indenture are governed by the laws of the Province of XXXXXXXXXX.
Proposed Transactions
5. Opco will amend the Notes, as permitted by, and in accordance with, the terms of the Trust Indenture on the basis of a resolution passed by holders of not less than XXXXXXXXXX% of the principal amount of all Notes outstanding so that:
(a) the maturity date is extended to XXXXXXXXXX;
(b) the principal repayments prior to maturity, XXXXXXXXXX; and
(c) the interest rate is changed from XXXXXXXXXX% to XXXXXXXXXX% commencing XXXXXXXXXX .
Opco will pay a consent premium of $XXXXXXXXXX principal amount in consideration of the approval of the amendment by holders of the Notes.
Purpose of the Proposed Transactions
6. Opco proposes to amend the terms of the Notes so that the timing of principal repayment obligations align more appropriately with Opco's expected cash position and requirements from time to time. Currently, Opco has accumulated cash reserves and proposes to accelerate the first principal installment date. Opco also intends to make additional investments during the term of the Notes and as a result proposes to extend the remaining principal repayment dates to enable more time for such investments to generate sufficient returns to fund such repayments.
7. Under the laws of the Province of XXXXXXXXXX which govern the Notes, there will not be, as a result of the amendments to the Notes as described in paragraph 5 above:
(a) a novation in respect of any portion of the Notes;
(b) a substitution of all or any portion of the Notes by a new debt; or
(c) a discharge, rescission or extinguishment of all or any portion of the Notes.
8. (a) Opco's address is XXXXXXXXXX;
(b) Opco is served by the XXXXXXXXXX Tax Services Office (TSO) and the XXXXXXXXXX Taxation Centre.
Ruling
Provided that the above description of facts, proposed transactions, purpose of the proposed transaction and other information are accurate and constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose thereof, and provided further that the proposed transactions are completed in the manner described above, we confirm that:
The amendments to the Notes as described in paragraph 5 above, would not, in and by themselves, result in either the "disposition" thereof by their holders under the definition set out in section 54 or the issuance of new obligations for the purposes of subparagraph 212(1)(b)(vii).
The ruling is given subject to the general limitations and qualifications set out in Information Circular IC 70-6R4 dated January 29, 2001 and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed by XXXXXXXXXX.
This ruling is based on the Act in its present form and does not take into account amendments to the Act which, if enacted into law, could have an effect on the ruling provided herein.
Nothing in this letter should be construed as implying that the Agency has reviewed or is making a determination or ruling in respect of:
(a) the laws of the Province of XXXXXXXXXX governing the Notes, specifically whether the Proposed Transactions result in the extinguishment or discharge of the Notes and their substitution by new obligations under such laws;
(b) any tax consequences with respect to the Notes other than those as specifically described in the ruling given above including whether interest paid on the Notes to a non-resident, prior to the proposed amendments described in paragraph 5 above, qualifies for exemption from Part XIII tax pursuant to subparagraph 212(1)(b)(vii);
(c) any tax consequences relating to the consent premium paid by Opco to a holder of Notes as described in paragraph 5 above; or
(d) any other tax consequences relating to any facts or proposed transactions referred to herein other than those as specifically described in the ruling given above.
Yours truly,
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
5
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content