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: Rights offering - application of paragraph 15(1)(c).
Position: Paragraph 15(1)(c) precludes inclusion of the amount of any benefit, received by virtue of the rights offering, in income.
Reasons: All common shareholders have identical rights.
XXXXXXXXXX 2001-008915
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: XXXXXXXXXX (the "Corporation")
This is in reply to your letter of XXXXXXXXXX in which you requested an advance income tax ruling on behalf of the above-noted taxpayer.
We understand that, to the best of your knowledge and that of the taxpayer, none of the issues involved in the requested rulings is being considered by a taxation services office or a taxation centre in connection with a tax return already filed, or is under objection or appeal.
Except as otherwise indicated, in this advance tax ruling all statutory references are to the Income Tax Act (Canada) (the "Act").
FACTS
1. The Corporation was incorporated in XXXXXXXXXX under the Canada Business Corporations Act. The Corporation is a "taxable Canadian corporation" and a "public corporation" within the meaning of subsection 89(1) of the Act.
2. The registered office of the Corporation is at XXXXXXXXXX. The Corporation's Business Number is XXXXXXXXXX, and it files its tax returns at the XXXXXXXXXX Taxation Centre.
3. XXXXXXXXXX.
4. XXXXXXXXXX.
5. XXXXXXXXXX.
6. The successful implementation of the Corporation's XXXXXXXXXX restructuring proposal is conditional upon the rights offering XXXXXXXXXX as presently structured. XXXXXXXXXX.
7. As at XXXXXXXXXX (the date the pricing terms of the rights offering XXXXXXXXXX were determined), the Corporation had XXXXXXXXXX common shares issued and outstanding and XXXXXXXXXX shares issued and outstanding. The Corporation's common shares ("Common Shares") and XXXXXXXXXX shares ("XXXXXXXXXX Shares") are listed on the XXXXXXXXXX.
8. XXXXXXXXXX.
8.1 XXXXXXXXXX.
9. XXXXXXXXXX.
10. To the knowledge of the Corporation's directors and senior officers, no person or company beneficially owns, directly or indirectly, or exercises control or direction over outstanding Common Shares (i.e. voting securities) carrying more than 10% of the voting rights attached to all outstanding voting securities.
PROPOSED TRANSACTIONS
11. The Corporation intends to restructure its balance sheet by way of (a) a rights offering of XXXXXXXXXX Common Shares at XXXXXXXXXX per Common Share to the Corporation's existing shareholders XXXXXXXXXX and (b) a common share offering of XXXXXXXXXX Common Shares at XXXXXXXXXX per Common Share to the Corporation's lenders (subject to prior participation by the Corporation's shareholders and other investors as described below) and certain investors XXXXXXXXXX.
XXXXXXXXXX
12. XXXXXXXXXX - The Corporation will issue rights to subscribe for Common Shares to all of the Corporation's registered shareholders. Each shareholder will receive one right for each Common Share and XXXXXXXXXX rights for each XXXXXXXXXX Share. Each right will entitle the holder to subscribe for XXXXXXXXXX Common Shares at XXXXXXXXXX per Common Share.
13. XXXXXXXXXX.
14. Rights will be listed on the XXXXXXXXXX.
15. XXXXXXXXXX - Holders of rights2 who exercise all of their rights in the XXXXXXXXXX will be entitled to subscribe for any or all of the Common Shares that were not taken up by the other shareholders. If all holders of rights subscribe for more Common Shares than are available, each holder's entitlement to additional shares may be pro-rated down to some lesser number. A holder who requests additional shares and receives fewer shares than requested may participate in the XXXXXXXXXX offering, to the extent described below.
XXXXXXXXXX
16. Certain shareholders have agreed to exercise part or all of the rights that they received in the XXXXXXXXXX Some of these XXXXXXXXXX shareholders, along with several investors who are currently not shareholders (XXXXXXXXXX ) have agreed to purchase, at XXXXXXXXXX per Common Share, at the request of the Corporation (i.e. a "put"), the Common Shares remaining after the rights offering, to a maximum of XXXXXXXXXX Common Shares (the "XXXXXXXXXX Commitments"). The purpose of structuring the XXXXXXXXXX Commitments as a put, instead of obligating XXXXXXXXXX to purchase the remaining Common Shares, is purely commercial and is not motivated by tax considerations. The put exists to ensure a successful rights offering and is not intended by the Corporation to confer a benefit on any member of the XXXXXXXXXX.
17. The Corporation has agreed to pay the members of the XXXXXXXXXX a commitment fee of XXXXXXXXXX% of the amount of the members' commitments.
XXXXXXXXXX
18. In addition to the rights offering, the Corporation will issue XXXXXXXXXX Common Shares at a price of XXXXXXXXXX per Common Share as follows:
(a) first, up to XXXXXXXXXX Common Shares will be allocated to existing shareholders (XXXXXXXXXX);
(b) second, up to XXXXXXXXXX Common Shares will be directed to a group of new investors and one current shareholder (XXXXXXXXXX);
(c) third, up to XXXXXXXXXX Common Shares will be directed to several participants in the XXXXXXXXXX; and
(d) fourth, all Common Shares remaining will be directed to the Corporation's lenders (XXXXXXXXXX).
19. XXXXXXXXXX - Holders of rights who requested additional shares in the XXXXXXXXXX and received fewer shares than requested, will automatically participate in the XXXXXXXXXX offering. These holders will receive the number of shares requested and not received, except that participation by a holder will be limited to the number of Common Shares received by the holder pursuant to the XXXXXXXXXX, less the number of shares received pursuant to the XXXXXXXXXX. A maximum of XXXXXXXXXX Common Shares will be allocated to these shareholders.
20. XXXXXXXXXX - One current shareholder and several new investors (XXXXXXXXXX) have agreed to purchase, if the Corporation so requests, at XXXXXXXXXX per share, the lesser of (a) XXXXXXXXXX Common Shares and (b) XXXXXXXXXX Common Shares less the shares taken up by the existing shareholders under XXXXXXXXXX. The XXXXXXXXXX will be required to purchase, at the Corporation's request, at least XXXXXXXXXX Common Shares (assuming that the existing shareholders take up XXXXXXXXXX shares, which is the maximum number available to them).
21. The XXXXXXXXXX has committed to purchasing a total of XXXXXXXXXX shares. If fewer than XXXXXXXXXX shares are required by the Corporation to be purchased by it, then each member will be required to purchase some lesser, pro-rated number.
22. The Corporation has agreed to pay the members of the XXXXXXXXXX a commitment fee of XXXXXXXXXX% of the members' commitments.
23. XXXXXXXXXX - One current shareholder and several new investors ("XXXXXXXXXX", all of which are members of the XXXXXXXXXX) have agreed to purchase, if the Corporation so requests, additional Common Shares at XXXXXXXXXX per share. The commitment of the XXXXXXXXXX is limited to XXXXXXXXXX Common Shares, less the aggregate number of Common Shares that these members purchased in the rights offering as part of the XXXXXXXXXX.
24. If less than the maximum number of Common Shares directed to the XXXXXXXXXX is available because of the number of shares taken up by the existing shareholders and the XXXXXXXXXX, then the XXXXXXXXXX may be requested by the Corporation to purchase a lesser, pro-rated number. If the existing shareholders and the XXXXXXXXXX take up all of the shares available to them, then the XXXXXXXXXX will not be requested to purchase any shares.
25. XXXXXXXXXX - Certain lenders under the Corporation's credit facilities (the "Lenders") have agreed to purchase up to XXXXXXXXXX of the Common Shares at XXXXXXXXXX per Common Share. The number of Common Shares to be taken up by the Lenders will be reduced by the number of shares taken up under the XXXXXXXXXX The Lenders are not guaranteed a minimum number of Common Shares.
PURPOSE OF THE PROPOSED TRANSACTIONS
26. The purpose of the rights offering XXXXXXXXXX is to XXXXXXXXXX.
RULING
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purposes of the proposed transactions, we rule as follows:
Subsection 15(1) of the Act will not apply to include in income the amount of any benefit that a holder of Common Shares may receive by virtue of the rights offering.
This ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R4 dated January 29, 2001 and is binding provided that the proposed transactions are completed before XXXXXXXXXX.
These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not, to the Act.
Nothing in this letter should be construed as confirmation of the tax consequences of any of the transactions described herein, other than as specifically described in the ruling given. In addition, it is our view that paragraph 15(1)(c) will not exempt the holders of XXXXXXXXXX Preferred Shares from having to include, in their income, the amount or value of any benefit which may be conferred on them by virtue of the rights offering.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
ENDNOTES
1 XXXXXXXXXX.
2 XXXXXXXXXX.
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© Her Majesty the Queen in Right of Canada, 2001
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