2001 Ruling 2001-0092673 - LOSS CONSOLIDATION

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: Request for an amendment to an advance income tax ruling.

Position: Requested amendment was incorporated into the Ruling by way of a Supplemental Ruling document.

Reasons: Amendment required reflecting a change in the proposed transactions.

XXXXXXXXXX 		2001-009267

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: Advance Income Tax Ruling
XXXXXXXXXX
XXXXXXXXXX - Ruling # 2001-006970

This is in reply to your facsimile dated XXXXXXXXXX wherein you advised us of changes to the transactions described in our advance income tax ruling letter dated XXXXXXXXXX, 2001, our file number 2001-006970 (the "Ruling"). You indicate that the requested amendments are as a result of certain facts and transactions, which were unknown at the time of the original ruling request.

In particular, the fact in paragraph 6 of the Ruling should have been as follows:

As of the date hereof, BCO's authorized share capital comprises unlimited common shares and unlimited preference shares. There are currently XXXXXXXXXX common shares outstanding and XXXXXXXXXX preference shares outstanding. ACO owns XXXXXXXXXX common shares (XXXXXXXXXX%), CCO owns XXXXXXXXXX common shares (XXXXXXXXXX%) and the remaining XXXXXXXXXX common shares (XXXXXXXXXX%) are owned by arm's length parties. One arm's length party owns all XXXXXXXXXX preference shares and XXXXXXXXXX common shares.

The following additional fact should have been described in the Ruling as taking place between the fact described in paragraph 6 and the fact described in paragraph 7:

The terms of the preference shares are as follows:

- Non-voting
- Redeemable at $XXXXXXXXXX per share
- XXXXXXXXXX % cumulative dividend payable XXXXXXXXXX

Dividends have been fully paid on the preference shares up to and including XXXXXXXXXX. The preference shares have a nominal paid up capital.

The fact in paragraph 20 of the Ruling should have been as follows:

After the completion of the proposed transaction described in paragraph 25, based on current agreements in place between Canadian chartered banks, US banks and BCO and its related companies, $XXXXXXXXXX in excess of the currently outstanding borrowings of BCO and its related companies can be borrowed by BCO without contravening current borrowing agreements, including the default of any bank covenants.

The following additional proposed transactions should have been described in the Ruling as taking place before the proposed transaction described in paragraph 25:

- ACO will acquire the XXXXXXXXXX preference shares of BCO.

- ACO will issue a note payable (the "Note") in the amount of approximately $XXXXXXXXXX (representing the redemption amount plus accrued dividends at the time) as consideration for the purchase of the BCO preference shares. The principal terms of the Note will be as follows:

- Interest-bearing at a rate of XXXXXXXXXX%, payable XXXXXXXXXX;

- Principal repayable in XXXXXXXXXX;

- Secured only against the BCO preference shares held by ACO.

- The dividend rate on the preference shares will be reduced from XXXXXXXXXX% to XXXXXXXXXX%.

The proposed transaction in paragraph 26 of the Ruling should have been described as follows:

BCO will borrow $XXXXXXXXXX on a "daylight loan" basis from an arm's length institutional lender (the "Daylight Loan").

The proposed transaction in paragraph 27 of the Ruling should have been described as follows:

BCO will use the money borrowed as described in paragraph 26 above, to purchase $XXXXXXXXXX of New Preferred Shares of ACO.

The proposed transaction in paragraph 28 of the Ruling should have been described as follows:

ACO will loan $XXXXXXXXXX (the "Intercompany Debt") to BCO. The debt will have the following characteristics:

a. it will have a XXXXXXXXXX year term with provision to extend;

b. the interest rate on the Intercompany Debt will be calculated daily by reference to the principal amount of the Intercompany Debt at a rate of XXXXXXXXXX percent and will be payable XXXXXXXXXX;

c. the principal is repayable by BCO any time before maturity and without penalty to BCO;

d. the principal will be repayable by BCO by delivery of New Preferred Shares; and

e. it will be subordinated to any bank indebtedness.

Notwithstanding the above-mentioned changes, we confirm that the ruling given in the Ruling will continue to be binding on the Canada Customs and Revenue Agency in the manner described therein, provided that the proposed transactions are completed by XXXXXXXXXX.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch