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 repurchase of outstanding warrants held by specified shareholders would be viewed as an acquisition of shares of an investment corporation by a specified shareholder such that the investment corporation would lose its grandfathered status under the coming into force provisions for S.C. 1998, c. 19, s. 155(2).
Position:
No. The repurchase of warrants of the investment corporation by the investment corporation, would not in and of itself be considered an acquisition of shares of the corporation by a specified shareholder for the purposes of subsection 155(5) of the coming into force provisions.
Reasons:
1. Warrants are separate and distinct instruments from shares. The wording does not extend to the acquisition of a right to acquire shares (ie. warrants), but only to the acquisition of shares of the capital stock of the corporation.
2. There is nothing in the facts which would suggest that the legal form of the repurchase is actually an exercise of the warrants by the specified shareholders, followed by a repurchase of the shares so acquired.
XXXXXXXXXX 2000-006315
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request for
XXXXXXXXXX ("Company A")
This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling in respect of the above named taxpayer. We also acknowledge the information provided in subsequent correspondence and during our 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 ruling request
(i) is in an earlier return of the taxpayer or a related person,
(ii) is being considered by a tax services office or taxation centre in connection with a previously filed tax return of the taxpayer or a related person,
(iii) is under objection by the taxpayer or a related person,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued 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.
Facts
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
1. Company A was incorporated under the laws of XXXXXXXXXX in XXXXXXXXXX, and is XXXXXXXXXX.
2. Company A is a "taxable Canadian corporation" and a "public corporation" as defined in subsections 89(1) and 248(1) for the purposes of the Act. Its tax account number is XXXXXXXXXX, files with the XXXXXXXXXX Taxation Centre and deals with the XXXXXXXXXX Tax Services office.
3. As of XXXXXXXXXX, there were XXXXXXXXXX issued and outstanding common shares (the "common shares") and XXXXXXXXXX issued and outstanding XXXXXXXXXX shares (the "preferred shares") in the capital of Company A.
4. The common shares are listed on XXXXXXXXXX The preferred shares are listed on the XXXXXXXXXX.
5. As of XXXXXXXXXX, there were also XXXXXXXXXX issued and outstanding common share purchase warrants ("warrants"). Each warrant entitles the holder thereof to subscribe for one common share at an exercise price of $XXXXXXXXXX per share. Company A issued XXXXXXXXXX warrants in XXXXXXXXXX in conjunction with the listing of the common shares on the XXXXXXXXXX. The warrants are listed on the XXXXXXXXXX and are exercisable on XXXXXXXXXX, after which they expire. At the time of issuance in XXXXXXXXXX, each warrant entitled the holder thereof to subscribe for one common share at an exercise price of $XXXXXXXXXX per share. The warrant indenture contains provisions to allow for adjustments to the exercise price upon the occurrence of certain events, including stock dividends and the payment of cash dividends in excess of net income. Subsequent to a XXXXXXXXXX stock split of Company A's common shares in XXXXXXXXXX, the warrants were subdivided on the basis of approximately XXXXXXXXXX new warrants for each old warrant. As a result of this subdivision and various warrant indenture adjustments, as of XXXXXXXXXX, there were approximately XXXXXXXXXX warrants issued and outstanding with each warrant entitling the holder thereof to subscribe for one common share at an exercise price of $XXXXXXXXXX.
6. Company A has been operated so as to qualify as an "investment corporation" (as defined in subsection 130(3) at all times since XXXXXXXXXX.
7. XXXXXXXXXX ("Company B") is also a taxable Canadian corporation and a public corporation for purposes of the Act.
8. As of XXXXXXXXXX, Company B owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares) and Company B also owned XXXXXXXXXX warrants.
9. XXXXXXXXXX ("Company C") is a taxable Canadian corporation for purposes of the Act and a wholly owned subsidiary of Company B. As of XXXXXXXXXX owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares) and Company C also owned XXXXXXXXXX warrants.
10. XXXXXXXXXX ("Company D") is a taxable Canadian corporation for purposes of the Act and a wholly owned subsidiary of Company B. As of XXXXXXXXXX owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares) and Company D also owned XXXXXXXXXX warrants.
11. XXXXXXXXXX ("Company E") is a taxable Canadian corporation for purposes of the Act and a wholly owned subsidiary of Company B. As of XXXXXXXXXX, Company E owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares) and Company E also owned XXXXXXXXXX warrants.
12. Accordingly, as of XXXXXXXXXX, Company B, together with its wholly owned subsidiaries, owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares) and XXXXXXXXXX warrants.
13. XXXXXXXXXX ("Company F") is a taxable Canadian corporation for purposes of the Act. As of XXXXXXXXXX, Company F owned XXXXXXXXXX% of the issued and outstanding shares in the capital of Company B.
14. XXXXXXXXXX ("Company G") is a taxable Canadian corporation for purposes of the Act. As of XXXXXXXXXX, Company G owned XXXXXXXXXX% of the shares in the capital of Company B. Company G owns all of the issued and outstanding shares in the capital of Company F. As of XXXXXXXXXX, Company G also owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares of Company A) and XXXXXXXXXX warrants.
15. XXXXXXXXXX ("X") is an individual resident in Canada. X owns all of the issued and outstanding shares in the capital of Company G. Accordingly, X controls (and is related to) each of Company F, Company G and Company B.
16. As of XXXXXXXXXX, X directly owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares) and XXXXXXXXXX warrants.
17. The information contained in paragraphs 8-16 above is based on information available to Company A as of the date hereof with respect to the beneficial shareholdings of X and the corporations referred to therein, and does not purport to be a comprehensive description of the beneficial shareholdings of every person that is related to X.
18. XXXXXXXXXX (the "Foundation") is a non-share capital corporation. The Foundation is a private foundation, a charitable foundation and a registered charity for purposes of the Act. There are three directors of the Foundation. X is a director of the Foundation. XXXXXXXXXX is also a director of the Foundation. The third director of the Foundation is XXXXXXXXXX. The sole activity of the Foundation consists of donating funds to other registered charities.
19. As of XXXXXXXXXX, the Foundation owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares) and XXXXXXXXXX warrants.
20. Accordingly, as of XXXXXXXXXX, X, the corporations referred to in paragraphs 8-15 and the Foundation collectively owned XXXXXXXXXX common shares (representing XXXXXXXXXX% of the issued and outstanding common shares) and XXXXXXXXXX warrants.
21. Each of X, and the corporations referred to in paragraphs 8-15 was a "specified shareholder" of Company A (as defined for purposes of subparagraph 130(3)(a)(vii)) on June 20, 1996.
22. None of Company B, Company C, Company D, Company E, Company F, Company G, the Foundation, nor X, has contributed capital to Company A nor acquired a share of the capital stock of Company A other than by a "permitted acquisition", as such term is defined in subsection 155(11) of the 1995-1997 technical bill (S.C. 1998, Division B, c. 19) since June 20, 1996.
23. Pursuant to XXXXXXXXXX of the indenture under which the warrants were issued (the "Warrant Indenture"), Company A may purchase any of the warrants on any stock exchange or in the open market, by private agreement or otherwise. The warrant certificates representing the warrants purchased pursuant to XXXXXXXXXX shall forthwith be delivered to and cancelled by the warrant agent.
Proposed Transaction
24. Company A will offer to purchase warrants for cancellation pursuant to an issuer bid to be made to all warrantholders. The purchase price would be a cash amount determined by the board of directors of Company A. It is intended by Company A that the purchase price of the warrants would be equal to the fair market value of the warrants at the time of purchase, and in accordance with XXXXXXXXXX of the Warrant Indenture this will be the lowest price at which the warrants are obtainable in the opinion of the directors of Company A.
Purpose of the Proposed Transaction
25. Company A has determined that the purchase of warrants pursuant to an issuer bid would be an appropriate use of corporate funds. In general, it is considered appropriate for closed-end publicly held investment funds, such as Company A to offer to purchase outstanding shares and warrants in order to assist in narrowing the discounts at which such funds usually trade in the public markets relative to net asset value.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions and provided further that the proposed transactions are carried out as described above, our ruling is as follows:
A. Provided Company A has been an investment corporation for the purposes of section 130, continuously since June 20, 1996, the repurchase of warrants by Company A for an amount equal to their fair market value, will not in and of itself be considered an acquisition of shares by a specified shareholder, for the purposes of subsection 155(5) of the coming into force provisions for S.C. 1998, c. 19, s. 155(2).
The ruling given is subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001, and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.
Yours truly,
Manager
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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