2001 Ruling 2001-0110363 - XXXXXXXXXX

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 CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: The application of paragraph 88(4)(b) to multiple amalgamations.

Position: The reference to "the subsidiary" for the purposes described in subsection 88(4) can be read to include the predecessor of the amalgamated corporation and the predecessor's predecessor, as the case may be, for those purposes.

Reasons: The law.

XXXXXXXXXX 2001-011036

XXXXXXXXXX, 2001

Dear XXXXXXXXXX:

Re: XXXXXXXXXX
Advance Income Tax Ruling Request

This is in reply to your letter of XXXXXXXXXX and your subsequent correspondence wherein you requested an advance income tax ruling on behalf of the above-noted taxpayer. You have advised us that to the best of your knowledge and that of the taxpayer involved none of the issues involved in this ruling request:

(a) is in an earlier return of the taxpayer or a related person;

(b) is being considered by a tax services office ("TSO") or taxation centre in connection with a previously filed tax return of the taxpayer or a related person;

(c) is under objection by the taxpayer or a related person;

(d) is before the courts or, if a judgement has been issued, the time limit for appeal to a higher court has not expired; or

(e) is the subject of a ruling previously issued by the Directorate.

DEFINITIONS

In this letter, unless otherwise indicated, all dollar amounts referred to herein are in Canadian dollars and unless otherwise indicated:

(a) "Act" means the Income Tax Act (Canada), R.S.C. 1985 (5th Supp.) c.1, as amended from time to time and consolidated to the date of this letter and, unless otherwise expressly stated, every reference to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Act and the income tax regulations thereunder are referred to as the "Regulations";

(b) "AcquisitionCo" means XXXXXXXXXX;

(c) "adjusted cost base" ("ACB") has the meaning assigned by section 54 and subsection 248(1);

(d) "arm's length" has the meaning assigned by section 251;

(e) XXXXXXXXXX;

(f) "capital property" has the meaning assigned by section 54 and subsection 248(1);

(g) XXXXXXXXXX;

(h) "Compulsory Acquisition" means an acquisition of XXXXXXXXXX by Pubco or AcquisitionCo, as the case may be and as described below, within the meaning of section XXXXXXXXXX of the XXXXXXXXXX and which are effected pursuant to section XXXXXXXXXX of the XXXXXXXXXX;

(i) "employee" has the meaning assigned by subsection 248(1);

(j) "fair market value" ("FMV") means the amount at which property would be transferred by a willing buyer to a willing seller, in an open and unrestricted market, between informed parties under no compulsion to act, as would be determined in accordance with the basic principles of valuation endorsed by the Canadian Institute of Chartered Business Valuators;

(k) "ineligible property" has the meaning assigned by paragraph 88(1)(c);

(l) "Internal Reorganization" means any transaction or series of transactions involving only members of the Pubco Group including, without limitation, the transfer of shares or assets between members of the Pubco Group, the wind-up of a Pubco Group member into another Pubco Group member, the amalgamation of members of the Pubco Group with other members of the Pubco Group, or the transfer of funds between members of the Pubco Group pursuant to intercompany financing transactions;

(m) XXXXXXXXXX;

(n) "New Amalco" means the new corporation to be formed on the amalgamation of PubcoSub and Target Amalco as described in paragraph 18 below;

(o) "Offer" means the public offer by Pubco and AcquisitionCo to purchase all of the Target Shares, as described in paragraph 9 below;

(p) "prescribed stock exchange" has the meaning assigned by section 3200 of the Regulations;

(q) "Pubco" means XXXXXXXXXX;

(r) XXXXXXXXXX;

(s) "Pubco Employee Stock Options" means stock options described in paragraph 14(c) below;

(t) "Pubco Group" means, at any time, Pubco, AcquisitionCo and each person that was at that time related, as defined by subsection 251(2) and if the Act was read without reference to paragraph 251(5)(b), to Pubco and AcquisitionCo, and includes any partnership all of the members of which are members of the Pubco Group;

(u) "Pubco XXXXXXXXXX Shares" means the XXXXXXXXXX shares in the capital of Pubco;

(v) "PubcoSub" means XXXXXXXXXX;

(w) XXXXXXXXXX;

(x) "public corporation" has the meaning assigned by subsection 89(1);

(y) "specified person" has the meaning assigned by subparagraph 88(1)(c.2)(i);

(z) "specified shareholder" has the meaning assigned by subsection 248(1), as modified by subparagraph 88(1)(c.2)(iii);

(aa) "Subsequent Reorganization" means the Internal Reorganization described in paragraph 22 below that may or may not occur subsequent to the proposed transactions described in paragraphs 17 and 18 below;

(bb) "Take-Up Date" means XXXXXXXXXX, the date upon which Target Shares were acquired by Pubco and AcquisitionCo pursuant to the Offer with the result that control of Target and its subsidiaries was acquired by AcquisitionCo;

(cc) "Target" means XXXXXXXXXX;

(dd) "Target Amalco" means the new corporation to be formed on the amalgamation of Target and TargetSubA as described in paragraph 17 below;

(ee) XXXXXXXXXX;

(ff) XXXXXXXXXX;

(gg) XXXXXXXXXX;

(hh) XXXXXXXXXX;

(ii) XXXXXXXXXX;

(jj) "Target Employee Stock Options" means the options to purchase Target XXXXXXXXXX Shares described in paragraph 11(c) below;

(kk) "Target Shares" means the XXXXXXXXXX;

(ll) "Target Partnership" means XXXXXXXXXX, a general partnership described in paragraph 8 below, formerly known as XXXXXXXXXX;

(mm) "Target Partnership A Units" means the XXXXXXXXXX Units of Target Partnership;

(nn) XXXXXXXXXX;

(oo) "TargetSubA" means XXXXXXXXXX;

(pp) "TargetSubA1" means XXXXXXXXXX;

(qq) XXXXXXXXXX;

(rr) XXXXXXXXXX;

(ss) "taxable Canadian corporation" has the meaning assigned by subsection 89(1);

(tt) "taxation year" has the meaning assigned by subsection 249(1);

(uu) XXXXXXXXXX; and

(vv) XXXXXXXXXX.

FACTS

1. Pubco is a taxable Canadian corporation and a public corporation which is subject to the XXXXXXXXXX and which has its head office in XXXXXXXXXX. Pubco's CCRA business number is #XXXXXXXXXX and it deals with the XXXXXXXXXX. As of the date hereof, the issued share capital of Pubco consists of XXXXXXXXXX.

2. AcquisitionCo is a taxable Canadian corporation, which is subject to the XXXXXXXXXX . On the Take-Up Date, Pubco owned all of the issued shares of AcquisitionCo. XXXXXXXXXX. AcquisitionCo's CCRA business number is #XXXXXXXXXX and it deals with the XXXXXXXXXX.

3. Target is a taxable Canadian corporation and a public corporation, which is subject to the XXXXXXXXXX. Target's CCRA business number is #XXXXXXXXXX and it deals with the XXXXXXXXXX. As described below, Pubco and AcquisitionCo, pursuant to the Offer and a Compulsory Acquisition, acquired all of the issued and outstanding shares of Target. Following the Take-Up Date, Pubco transferred all of its Target Shares to AcquisitionCo in exchange for additional shares of AcquisitionCo, XXXXXXXXXX, at the date hereof, Target is a wholly-owned subsidiary of AcquisitionCo.

4. TargetSubA is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of Target. TargetSubA's CCRA business number is #XXXXXXXXXX and it deals with the XXXXXXXXXX.

5. TargetSubA1 is a taxable Canadian corporation which is subject to the XXXXXXXXXX and which is a wholly-owned subsidiary of TargetSubA. TargetSubA1's CCRA business number is #XXXXXXXXXX and it deals with the XXXXXXXXXX.

6. PubcoSub is a taxable Canadian corporation XXXXXXXXXX.

Currently, XXXXXXXXXX PubcoSub are owned by Target. XXXXXXXXXX.

7. Target Partnership is a general partnership formed pursuant to XXXXXXXXXX on XXXXXXXXXX. Prior to the Take-Up Date, the partners of Target Partnership were TargetSubA and TargetSubA1. XXXXXXXXXX.

XXXXXXXXXX. As of the date hereof, the partners of Target Partnership are TargetSubA, PubcoSub and TargetSubA1.

XXXXXXXXXX

8. XXXXXXXXXX.

9. On XXXXXXXXXX, Pubco and AcquisitionCo made an offer (i.e. the Offer) to purchase all of the issued and outstanding Target Shares (including any shares which may have become outstanding as a result of XXXXXXXXXX prior to the Take-Up Date) in exchange for consideration consisting of XXXXXXXXXX on the basis outlined in an information circular which was provided to holders of Target Shares.

10. As of the date of the Offer, Target's outstanding share capital consisted of:

XXXXXXXXXX.

11. As of the date of the Offer, Target also had the following:

XXXXXXXXXX.

12. XXXXXXXXXX.

13. Immediately prior to the Take-Up Date, Target had the following specified shareholders:

XXXXXXXXXX.

There were no other specified shareholders of Target immediately before the Take-Up Date.

14. In connection with the Offer, the following transactions took place on or after the Take-Up Date:

(a) on XXXXXXXXXX, Pubco and AcquisitionCo acquired, in aggregate, XXXXXXXXXX (AcquisitionCo acquired the majority of the voting shares of Target in this step);

(b) as consideration for the transfers of shares described in (a), tendering shareholders received XXXXXXXXXX (where Target Shares were acquired by AcquisitionCo for consideration including XXXXXXXXXX, such shares were issued by Pubco to the tendering shareholder in exchange for AcquisitionCo issuing shares to Pubco);

(c) effective XXXXXXXXXX, Target Employee Stock Options which were not exercised prior to the Take-Up Date, XXXXXXXXXX, were exchanged for options to acquire Pubco XXXXXXXXXX Shares (i.e. Pubco Employee Stock Options);

(d) on XXXXXXXXXX, AcquisitionCo acquired the issued and outstanding Target Shares not previously acquired by Pubco or AcquisitionCo by way of a Compulsory Acquisition; and

(e) pursuant to an agreement entered into on XXXXXXXXXX, Pubco subsequently transferred the Target Shares acquired by it pursuant to the Offer to AcquisitionCo in exchange for an additional common share of AcquisitionCo.

15. XXXXXXXXXX.

16. XXXXXXXXXX.

PROPOSED TRANSACTIONS

17. TargetSubA and Target will be amalgamated, pursuant to XXXXXXXXXX, to form Target Amalco. Currently, it is anticipated that the amalgamation of Target and TargetSubA will occur on XXXXXXXXXX.

18. At some time following the completion of the amalgamation described in paragraph 17 above PubcoSub and Target Amalco will, as part of an Internal Reorganization, be amalgamated, pursuant to XXXXXXXXXX, to form New Amalco. Currently, it is anticipated that the amalgamation of PubcoSub and Target Amalco will occur on or before XXXXXXXXXX.

ADDITIONAL INFORMATION

19. XXXXXXXXXX.

20. XXXXXXXXXX.

21. XXXXXXXXXX.

22. The amalgamation of TargetSubA and Target, described in paragraph 17 above, and the amalgamation of PubcoSub and Target Amalco, described in paragraph 18 above, will comply fully with the requirements of subsection 87(1).

23. At some time following the completion of the amalgamations described in paragraph 17 and 18 above, a further Internal Reorganization may be undertaken which would involve the wind-up or vertical amalgamation of New Amalco into AcquisitionCo.

The wind-up or amalgamation described above is expected to result in an increase in the ACB of the Target Partnership A Units held by AcquisitionCo or the new corporation, as the case may be, pursuant to paragraphs 88(1)(c) and (d). For greater certainty, on any subsequent amalgamation or wind-up involving Target Amalco or New Amalco (in this paragraph referred to as the "subsidiary"), the only capital property in respect of which a paragraph 88(1)(d) designation may be made will be the Target Partnership A Units owned by the subsidiary immediately before the subsequent amalgamation or wind-up, as the case may be, that are not ineligible property at that time. Currently, there is no intention, or arrangements in place, to dispose of the Target Partnership A Units to any person outside the Pubco Group.

24. As there are currently impediments to the implementation of the Subsequent Reorganization, the Subsequent Reorganization would include transactions described in paragraph 15(c) of Information Circular 70-6R4 dated January 29, 2001 ("IC 70-6R4") at this time. Consequently, it will be necessary to request a further advance income tax ruling in respect of the Subsequent Reorganization at such time that a decision is made to implement these transactions.

PURPOSE OF THE PROPOSED TRANSACTIONS

25. The purpose of the Proposed Transactions is to facilitate the utilization of certain non-capital losses carried forward in TargetSubA, which are nearing expiry. XXXXXXXXXX.

RULINGS GIVEN

Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and the purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as set forth below.

A. For the purposes only of applying paragraph 88(1)(c) to determine the cost of the Target Partnership A Units that were owned by TargetSubA on the Take-Up Date, following the amalgamation described in paragraph 17 above, pursuant to subsection 88(4),

(i) Target Amalco will be considered to be the same corporation as, and a continuation of, Target, for the purposes of applying the reference in subparagraph 88(1)(c.4)(iii) to "the subsidiary"; and

(ii) Target Amalco will be considered to be the same corporation as, and a continuation of, TargetSubA, for the purposes of determining whether Target Partnership A Units were capital property owned by Target Amalco on the Take-Up Date, and for the purposes of determining when AcquisitionCo last acquired control of Target Amalco.

B. For the purposes only of applying paragraph 88(1)(c) to determine the cost of the Target Partnership A Units that were owned by TargetSubA on the Take-Up Date, following the amalgamation described in paragraph 18 above, pursuant to subsection 88(4),

(iii) New Amalco will be considered to be the same corporation as, and a continuation of, Target, for the purposes of applying the reference in subparagraph 88(1)(c.4)(iii) to "the subsidiary"; and

(iv) New Amalco will be considered to be the same corporation as, and a continuation of, TargetSubA, for the purposes of determining whether Target Partnership A Units were capital property owned by New Amalco on the Take-Up Date, and for the purposes of determining when AcquisitionCo last acquired control of New Amalco.

The above rulings are given subject to the limitations and qualifications set out in IC 70-6R4 and are binding on the CCRA provided that the proposed transactions are completed by XXXXXXXXXX. These rulings are based on the law as it presently reads and do not take into account any proposed amendments to the Act which, if enacted into law, could have an effect on the rulings provided herein.

Comments

Nothing in this should be construed as implying that the CCRA has confirmed, reviewed or has made any determination in respect of:

(a) the FMV of any particular property referred to herein;

(b) the deductibility of any non-capital loss or other amount of any corporation or predecessor corporation; or

(c) any other tax consequence relating to the facts, proposed transaction, additional information or any subsequent transaction or event, whether described in this letter or not other than those specifically described in the rulings given above, including whether any subsequent transaction or event is or is not considered to be part of the series of transactions or events described herein.

Yours truly,

for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch