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: Amendments to a split-up butterfly reorganization where "reorganization shares" will be used instead of trying to transfer the "correct" number of shares.
Position: Does not change the rulings given.
Reasons: Meets the requirements of the law.
XXXXXXXXXX 2001-011531
XXXXXXXXXX, 2001
Dear XXXXXXXXXX:
Re: XXXXXXXXXX
Advance Income Tax Ruling
Reference Number 2001-008479
This is in reply to your letter of XXXXXXXXXX, requesting amendments to the Advance Income Tax Ruling (our reference 2001-008479) dated XXXXXXXXXX , 2001 (the "Ruling").
1. The following paragraph will be added immediately following paragraph 24 of the Ruling:
Paragraph 24.1
24.1 Oco will file articles of amendment to create six additional classes of shares being XXXXXXXXXX Shares (the "Oco XXXXXXXXXX Shares"), XXXXXXXXXX common shares (the "Oco XXXXXXXXXX Common Shares"), XXXXXXXXXX shares (the "Oco XXXXXXXXXX Shares"), XXXXXXXXXX shares (the "Oco XXXXXXXXXX Shares"), XXXXXXXXXX shares (the "Oco XXXXXXXXXX Shares"), and XXXXXXXXXX shares (the "Oco XXXXXXXXXX Shares").
Each Oco Common share will be exchanged for 1 Oco XXXXXXXXXX Common Share and 1 Oco XXXXXXXXXX Share (such exchange referred to as the "Oco Common Share Exchange"). As a result of the Oco Common Share Exchange, the aggregate stated capital of the Oco Common Shares, immediately before such exchange, will be allocated pro-rata based on fair market value to the Oco XXXXXXXXXX Common Shares and the Oco XXXXXXXXXX Shares.
Each Oco XXXXXXXXXX share will be exchanged for 1 Oco XXXXXXXXXX share and 1 Oco XXXXXXXXXX share (the "Oco XXXXXXXXXX Share Exchange"). As a result of the Oco XXXXXXXXXX Share Exchange, the aggregate stated capital of the Oco XXXXXXXXXX Shares, immediately before such exchange, will be allocated pro-rata based on fair market value to the Oco XXXXXXXXXX Shares and the Oco XXXXXXXXXX Shares.
Each Oco XXXXXXXXXX share will be exchanged for 1 Oco XXXXXXXXXX share and 1 Oco XXXXXXXXXX share (the "Oco XXXXXXXXXX Share Exchange"). As a result of the Oco XXXXXXXXXX Share Exchange, the aggregate stated capital of the Oco XXXXXXXXXX Shares, immediately before such exchange, will be allocated pro-rata based on fair market value to the Oco XXXXXXXXXX shares and the Oco XXXXXXXXXX shares.
Oco XXXXXXXXXX Shares
The Oco XXXXXXXXXX Shares will have an aggregate redemption amount (the "Oco XXXXXXXXXX Aggregate Redemption Amount") equal to:
That proportion of
the fair market value of all the issued and outstanding shares of Oco (immediately before the Oco Common Share Exchange)
that
the net fair market value (immediately before the Oco Common Share Exchange) of the net business property to be transferred to Pco and Cco (as described in paragraph 32)
is of
the net fair market value (immediately before the Oco Common Share Exchange) of all the net business property of Oco.
The Oco XXXXXXXXXX Shares will be non-voting and will be redeemable and retractable at an amount per share equal to the result obtained when the Oco XXXXXXXXXX Aggregate Redemption Amount is divided by the number of Oco XXXXXXXXXX Shares issued.
Oco XXXXXXXXXX Common Shares
The Oco XXXXXXXXXX Common Shares will have the same rights and privileges as the Oco Common Shares except that the Oco XXXXXXXXXX Common Shares will be entitled to XXXXXXXXXX votes per share instead of one vote per share.
Oco XXXXXXXXXX Shares
The Oco XXXXXXXXXX shares will be non-voting and will have an aggregate redemption amount equal to:
That proportion of
the fair market value of all the issued and outstanding Oco XXXXXXXXXX Shares (immediately before the Oco Common Share Exchange)
that
the Oco XXXXXXXXXX Aggregate Redemption Amount
is of
the aggregate of the fair market value of all the issued and outstanding Oco Common Shares (immediately before the Oco Common Share Exchange).
Oco XXXXXXXXXX Shares
The Oco XXXXXXXXXX shares will be non-voting and will have an aggregate redemption amount equal to:
The amount that
the fair market value of all the issued and outstanding Oco XXXXXXXXXX Shares (immediately before the Oco Common Share Exchange)
exceeds
the aggregate redemption amount of the Oco XXXXXXXXXX Shares.
Oco XXXXXXXXXX Shares
The Oco XXXXXXXXXX shares will be non-voting and will have an aggregate redemption amount equal to:
That proportion of
the fair market value of all the issued and outstanding Oco XXXXXXXXXX Shares (immediately before the Oco Common Share Exchange)
that
the Oco XXXXXXXXXX Aggregate Redemption Amount
is of
the aggregate of the fair market value of all the issued and outstanding Oco Common Shares (immediately before the Oco Common Share Exchange).
Oco XXXXXXXXXX Shares
The Oco XXXXXXXXXX shares will be non-voting and will have an aggregate redemption amount equal to:
The amount that
the fair market value of all the issued and outstanding Oco XXXXXXXXXX Shares (immediately before the Oco Common Share Exchange)
exceeds
the aggregate redemption amount of the Oco XXXXXXXXXX Shares.
2. Paragraph 27 will be deleted and replaced with the following:
27. Cco will transfer to Qco all of its Oco XXXXXXXXXX Common Shares in consideration for Qco Common Shares having a fair market value equal to the fair market value of the Oco XXXXXXXXXX Common Shares so transferred.
Each holder of Oco XXXXXXXXXX Shares will transfer all of his or her Oco XXXXXXXXXX Shares to Qco in consideration for Qco XXXXXXXXXX Shares having a fair market value equal to the fair market value of the Oco XXXXXXXXXX Shares so transferred.
Each holder of Oco XXXXXXXXXX Shares will transfer all of his Oco XXXXXXXXXX Shares to Qco in consideration for Qco XXXXXXXXXX Shares having a fair market value equal to the fair market value of the Oco XXXXXXXXXX Shares so transferred.
The fair market value, immediately before the transfer described in paragraph 32, of each shareholder's shares of Qco will be equal to the product obtained when
(a) the fair market value (immediately before the transfer described in paragraph 32) of all the shares of Qco
is multiplied by
(b) the fair market value of the shares of Oco owned by such shareholder (immediately before the transfer described in this paragraph) is divided by the fair market value of all the shares of Oco (immediately before the transfers described in this paragraph).
3. The second and third paragraphs of Paragraph 28 will be amended so that the references to Oco XXXXXXXXXX Shares and Oco XXXXXXXXXX Shares will be read as a reference to Oco XXXXXXXXXX Shares and Oco XXXXXXXXXX Shares, respectively.
4. Paragraph 29 will be deleted.
5. The second paragraph of Paragraph 32 (which defines "approximates that proportion") will be amended as follows:
For the purposes of this paragraph, the expression "approximates that proportion" means the discrepancy from that proportion, if any, that would not exceed XXXXXXXXXX determined as a percentage of the net fair market value of the property that Cco receives (directly or indirectly through Pco) compared to what it would have received had it received its appropriate pro-rata share of Oco's property.
6. The fourth paragraph of Paragraph 32 will be amended so that the reference to "a pro-rata amount of any cash and near-cash property . . ." will be amended to "a pro-rata amount of any cash and near-cash property (including the payment to be made by Oco directly to Cco as described in this paragraph . . . "
7. Paragraph 36 will be amended to read as follows:
Oco will redeem all of its Oco XXXXXXXXXX Shares held by Cco for an amount equal to their fair market value, being the Oco XXXXXXXXXX Aggregate Redemption Amount. Oco will satisfy the redemption price by issuing and delivering to Cco a non-interest-bearing note (the "Oco Redemption Note") payable on demand having a principal amount and fair market value equal to the redemption price.
RULING
Provided that the statements of facts, proposed transactions and purposes of the proposed transactions contained in the Ruling as amended by this letter constitutes a complete and accurate disclosure of all the relevant statements of facts, proposed transactions and purposes of the proposed transactions, we rule as follows:
C.1 For each Oco shareholder who holds Oco Common Shares or Oco XXXXXXXXXX Shares or Oco XXXXXXXXXX Shares, as the case may be, as capital property, the provisions of subsection 86(1) will apply and the provisions of subsection 86(2) will not apply to the Oco Common Share Exchange, the Oco XXXXXXXXXX Share Exchange or the Oco XXXXXXXXXX Share Exchange, as the case may be, described in paragraph 24.1 above, such that:
a) the cost of the Oco XXXXXXXXXX Shares or the Oco XXXXXXXXXX Common shares, as the case may be, received on the Oco Common Share Exchange will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate adjusted cost base to Cco, immediately before the Oco Common Share Exchange, of the Oco Common Shares, that
i) the fair market value, immediately after the Oco Common Share Exchange, of the Oco XXXXXXXXXX Shares or the Oco XXXXXXXXXX Common Shares, as the case may be, is of
ii) the fair market value, immediately after the Oco Common Share Exchange, of all the shares of Oco received by Cco on the Oco Common Share Exchange.
b) the cost of the Oco XXXXXXXXXX shares or the Oco XXXXXXXXXX shares, as the case may be, received on the Oco XXXXXXXXXX Share Exchange will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate adjusted cost base to the particular Oco XXXXXXXXXX shareholder, immediately before the Oco XXXXXXXXXX Share Exchange, of the Oco XXXXXXXXXX shares, that
i) the fair market value, immediately after the Oco XXXXXXXXXX Share Exchange, of the Oco XXXXXXXXXX shares or the Oco XXXXXXXXXX shares, as the case may be, is of
(ii) the fair market value, immediately after the Oco XXXXXXXXXX Share Exchange, of all of the shares of Oco received by the particular Oco XXXXXXXXXX shareholder on the Oco XXXXXXXXXX Share Exchange.
c) the cost of the Oco XXXXXXXXXX shares or the Oco XXXXXXXXXX shares, as the case may be, received on the Oco XXXXXXXXXX Share Exchange will be deemed by paragraph 86(1)(b) to be an amount equal to that proportion of the aggregate adjusted cost base to the particular Oco XXXXXXXXXX shareholder, immediately before the Oco XXXXXXXXXX Share Exchange, of the Oco XXXXXXXXXX shares, that
i) the fair market value, immediately after the Oco XXXXXXXXXX Share Exchange, of the Oco XXXXXXXXXX shares or the Oco XXXXXXXXXX shares, as the case may be, is of
ii) the fair market value, immediately after the Oco XXXXXXXXXX Share Exchange, of all of the shares of Oco received by the particular Oco XXXXXXXXXX shareholder on the Oco XXXXXXXXXX Share Exchange.
d) a particular Oco shareholder will be deemed by paragraph 86(1)(c) to have disposed of his, her or its shares of Oco for aggregate proceeds of disposition equal to the aggregate cost to the particular Oco shareholder of the shares received on the Oco shares exchanges as determined in (a) or (b) or (c) above.
Ruling D
Ruling D is amended so that the references to "paragraphs 27 to 29 above" are amended to "paragraphs 27 and 28 above".
Ruling H
The first paragraph of Ruling H is amended to read as follows:
Subsection 84(3) will apply on the redemption of the Oco XXXXXXXXXX Shares held by Cco, as described in paragraph 36 above, to deem Oco to have paid and Cco to have received a dividend equal to the amount, if any, by which the redemption price exceeds the paid-up capital thereof immediately before the redemption, and such dividend: ..."
We confirm that all the rulings contained in the Ruling as amended by this letter will be binding on the Canada Customs and Revenue Agency subject to the limitations and qualifications set forth in Information Circular 70-6R4 issued on January 29, 2001, provided that the proposed transactions are completed before XXXXXXXXXX.
Yours truly,
for Director
Reorganizations and Resources Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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