7 July 2000 Income Tax Severed Letter 2000-0061031 - Supplementary file 2000-004014

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.

SUMMARY: Supplementary file 2000-004014—ITA-55(3)(b)—Advance income tax ruling—Amendments to advance income tax ruling number 2000-004014 issued in 2000 that relates to the assumption of tenant inducement costs by a transferee corporation.

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: Assumption of tenant inducement costs by transferee corporations

POSITION: Tenant inducement costs assigned to transferee corporations will be deductible on the same basis as that of the distributing corporation.

REASONS: Inducement Costs represents rights relating to leases in respect of the property transferred in the butterfly and the consideration paid for these rights should be deductible by the transferee corporations (See Ruling 3-980098).

XXXXXXXXXX 2000-006103

Attention: XXXXXXXXXX

XXXXXXXXXX, 2000

Dear Sirs:

Re: XXXXXXXXXX. (“XXXXXXXXXX /Aco”)

XXXXXXXXXX. (“XXXXXXXXXX /Bco”)

XXXXXXXXXX (“XXXXXXXXXX /Cco”)

Advance Income Tax Ruling

This is in reply to your letter of XXXXXXXXXX in which you advised of additional facts and proposed transactions and requested additional rulings to the rulings described in our letter of XXXXXXXXXX, 2000 on our file 2000-004014 (the “Ruling”).

Terms defined in the Ruling to have a certain meaning have the same meaning when used in this letter.

As a result of your letter the following changes will be made to the Ruling:
• 1. Add a new subparagraph to Paragraph 4 as follows:

  XXXXXXXXXX /Aco has an undeducted balance of tenant inducement costs that have not been deducted for tax purposes (the “Inducement Costs”). The undeducted balance of the Inducement Costs as at XXXXXXXXXX was approximately $XXXXXXXXXX. The Inducement Costs relate to tenant inducements granted by XXXXXXXXXX /Aco to tenants of the Property and in respect of leases entered into by XXXXXXXXXX /Aco with such tenants. The leases to which the Inducement Costs relate will be assigned to each of XXXXXXXXXX /Bco and Newco as part of the transfer of property and assumption of Liabilities described in Paragraph 19.

• 2. Add a new subparagraph to Paragraph 19 as follows:

  As part of the transfer of property to XXXXXXXXXX /Bco and Newco, XXXXXXXXXX /Aco will assign to each of XXXXXXXXXX /Bco and Newco its respective proportionate interest in the benefit of the Inducement Costs. As consideration for the assignment of the benefit of the Inducement Costs, each of XXXXXXXXXX /Bco and Newco will assume a portion of the Liabilities with a principal amount equal to the amount of the benefit of the Inducement Costs assigned to XXXXXXXXXX /Bco or Newco, as the case may be. The undeducted balance of the Inducement Costs of XXXXXXXXXX /Aco will be reduced by the total of the principal amounts of the Liabilities so assumed by XXXXXXXXXX /Bco and Newco. No election under subsection 85(1) will be made in respect of the assignment of the benefit of the Inducement Costs.

• 3. The following rulings will be added:

  O. Provided that the total of the principal amounts of the Liabilities, assumed by XXXXXXXXXX /Bco and Newco in respect of the assignment of the Inducement Costs, reduces the undeducted balance of the Inducement Costs of XXXXXXXXXX /Aco, no amount will be required to be included by XXXXXXXXXX /Aco in computing its income in the year in respect of the assumption of such liabilities.

  P. Each of XXXXXXXXXX /Bco and Newco will be entitled to deduct, in computing its income, its share of the undeducted balance of the Inducement Costs acquired from XXXXXXXXXX /Aco, as a result of the transfer of property described in Paragraph 19, on the same basis as XXXXXXXXXX /Aco would have been entitled to deduct these amounts.

We confirm that the above changes and additional rulings will not affect the rulings given in the Rulings and they will continue to be binding on the CCRA as indicated therein.

Yours truly,

for Director

Reorganizations and International Division

Income Tax Rulings Directorate

Policy and Legislation Branch