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: Whether Put Option is 96(2.2)(d) benefit.
Position: No
Reasons: The maximum price is the fair market value of the Units when the put is exercised.
XXXXXXXXXX 2002-012613
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: XXXXXXXXXX Supplementary Advance Income Tax Ruling
This is in reply to your letter of XXXXXXXXXX, and is supplemental to our advance income tax ruling number 2001-007326 dated XXXXXXXXXX, 2001 and our supplementary advance income tax ruling number 2001-010978, dated XXXXXXXXXX , 2001 (collectively referred to as the "Ruling").
As a result of your letter, the following changes will be made to the Ruling:
2. In the DEFINITIONS section:
(a) In the definition of "Call Option" in paragraph (c), delete the word "call" before the words "Option Agreement";
(b) In the definition of "First Call Period" in paragraph (j), delete the words "XXXXXXXXXX" and "XXXXXXXXXX" and insert in their places, respectively, the words "XXXXXXXXXX" and "XXXXXXXXXX";
(c) In the definitions of "Limited Partner" and "Limited Partners", in paragraph (o), delete "XXXXXXXXXX" and insert "XXXXXXXXXX" in its place;
(d) In the definition of "Second Call Period" in paragraph (y), delete the words "XXXXXXXXXX" and "XXXXXXXXXX" and insert in their places, respectively, the words "XXXXXXXXXX" and "XXXXXXXXXX"; and
(e) Add the following definitions at new paragraphs (ff) and (gg) immediately following paragraph (ee):
"(ff) "Put Option" means the right, but not the obligation, of a Limited Partner under the Option Agreement, to request that ParentCo purchase all, but not less than all, of the issued and outstanding Units held by such Limited Partner;
(gg) "Put Period" means the period from XXXXXXXXXX to XXXXXXXXXX."
2. In the first subparagraph of paragraph 9, delete "XXXXXXXXXX" and insert "XXXXXXXXXX" in its place;
3. In the second subparagraph of paragraph 9, delete the words "XXXXXXXXXX Units to be issued on or about XXXXXXXXXX" and insert "up to XXXXXXXXXX Units to be issued on or about XXXXXXXXXX" in their place.
4. In paragraph 13, delete the words "three equal" and insert the word "two" in its place.
5. In paragraph 13, in subparagraph (a), delete "1/3" and insert "XXXXXXXXXX%" in its place.
6. In paragraph 13, delete subparagraphs (b) and (c) and insert "(b) XXXXXXXXXX% on or before XXXXXXXXXX" in their place.
7. In paragraph 14, delete the letter "s" at the end of the word "payment" appearing at three places and delete the letter "s" at the end of the word "date".
8. In subparagraph 22(b), delete the word "Call".
9. In paragraph 23:
(a) Delete "XXXXXXXXXX", appearing at two places, and insert "XXXXXXXXXX" in its place;
(b) Delete the words "XXXXXXXXXX" and insert the words "XXXXXXXXXX" in their place; and
(c) Delete "XXXXXXXXXX" and insert "XXXXXXXXXX" in its place.
10. In paragraph 29:
(a) In the first sentence, delete the words XXXXXXXXXX" and insert the words XXXXXXXXXX" in their place;
(b) In the second sentence, delete "XXXXXXXXXX" and insert "XXXXXXXXXX" in its place; and
(c) Delete the words "XXXXXXXXXX" and insert the words "XXXXXXXXXX in their place.
11. In paragraph 34:
(a) Delete the words in the first subparagraph after the words "satisfied by" and insert the following in their place:
"the following:
(i) a payment of XXXXXXXXXX in cash; and
(ii) the delivery of that number of freely tradable shares in ParentCo determined by dividing XXXXXXXXXX by XXXXXXXXXX% of the Current Market Price of these shares."
(b) In the first sentence in the second subparagraph, insert ", as adjusted by the fair market value of such Unit at the time when the Call Option is exercised," after "during the Second Call Period will be"
(c) In (ii) of the second subparagraph, delete "XXXXXXXXXX" and insert "XXXXXXXXXX" in its place
(d) Insert "The total purchase price per Unit during the First Call Period and the Second Call Period, respectively, will not exceed the fair market value of the Unit when the Call Option is exercised." before the last paragraph.
12. Insert the following new paragraph 34.1 immediately after paragraph 34:
"Put Option
34.1 Each Limited Partner will, under the Put Option, have the right, but not the obligation, to request that ParentCo acquire all, but not less than all, Units held by such person at a price (the "Put Price") equal to the lesser of $XXXXXXXXXX per Unit and the fair market value of such Unit at the time when the Put Option is exercised, as determined by an independent valuator. The Put Price will be satisfied by ParentCo by the following consideration:
(i) a payment in cash of up to $XXXXXXXXXX; and
(ii) by the delivery of that number of freely tradable shares in ParentCo determined by dividing the excess, if any, of the Put Price over $XXXXXXXXXX by XXXXXXXXXX% of the Current Market Price of these shares."
13. In the first sentence in Ruling H, delete the word "XXXXXXXXXX" and insert the word "XXXXXXXXXX" in its place.
14. Delete the last two sentences in Ruling H.
15. Delete Ruling M.
16. Insert the following, as Ruling N.1:
"N.1 To the extent that a Unit represents capital property of a particular Limited Partner, the existence of the Put Option as described in paragraph 34.1 above or its exercise by a Limited Partner will not, in and by itself, affect the status of the Unit as "capital property" as defined in section 54 of the Act."
17. In Ruling O, delete the word "Agreement".
18. Insert the following as Ruling O.1:
"O.1. The arrangement under which the Put Option described in paragraph 34.1 above is provided to the Limited Partners will not, in and by itself, result in a reduction of the at-risk amount under the provisions of paragraph 96(2.2)(d) of the Act."
Notwithstanding the above changes, we confirm that the Ruling will continue to be binding on the Canada Customs and Revenue Agency in the manner described therein, provided the proposed transactions are completed on or before XXXXXXXXXX.
If we can be of any further assistance, please contact the writer.
Yours truly,
XXXXXXXXXX
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
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