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:
1) Will debts of a trust be foreign property for purposes of Part XI?
2) Will GAAR apply to the transactions?
Position:
1) No
2) No
Reasons:
1) Nothing in the Act to include debts of a trust as foreign property.
2) The GAAR committee has ruled that similar transactions do not represent a misuse or abuse of the Act.
XXXXXXXXXX 2002-013400
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX (the "Corporation") -XXXXXXXXXX
We are writing in response to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of the above-referenced taxpayer. We also acknowledge receipt of your correspondence dated XXXXXXXXXX.
Definitions
In this letter, unless otherwise expressly stated:
(a) "Act" means the Income Tax Act (Canada), as amended, and unless otherwise stated, every reference herein to a section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
(b) "capital property" has the meaning assigned by section 54 of the Act;
(c) "CBCA" means the Canada Business Corporations Act;
(d) "Company A" refers to XXXXXXXXXX;
(e) "Company B" refers to XXXXXXXXXX;
(f) "Company C" refers to XXXXXXXXXX;
(g) "Company D" refers to XXXXXXXXXX;
(h) "Company E" refers to XXXXXXXXXX;
(i) "Company F" refers to XXXXXXXXXX;
(j) "Company G" refers to XXXXXXXXXX;
(k) "foreign property" has the meaning assigned in subsection 206(1) of the Act;
(l) XXXXXXXXXX;
(m) "public corporation" has the meaning assigned by subsection 89(1) of the Act;
(n) "Parent" refers to XXXXXXXXXX;
(o) "Purchaser" refers to XXXXXXXXXX;
(p) "taxable Canadian corporation" has the meaning assigned by subsection 89(1) of the Act; and
(q) "Vendor" refers to XXXXXXXXXX.
Our understanding of the facts, proposed transactions and purpose of the proposed transactions is as set forth below.
Facts
1. Parent is XXXXXXXXXX.
2. Company A is a corporation governed by the CBCA and is a direct, wholly-owned subsidiary of Parent. Company A is exempt from tax under paragraph 149(1)(o.2)(iii) of the Act and is subject to Part XI of the Act. Company A's Business Number is XXXXXXXXXX.
3. The Corporation is a corporation governed by the CBCA and is a direct, wholly-owned subsidiary of Company A. The Corporation is exempt from tax under paragraph 149(1)(o.2)(iii) of the Act and is subject to Part XI of the Act.
4. Company B is a corporation governed by the XXXXXXXXXX. Company B is a taxable Canadian corporation. More than fifty percent (50%) of the shares of Company B are owned by Parent and XXXXXXXXXX. The remaining shares of Company B are held by its employees and others. Company B's Business Number is XXXXXXXXXX.
5. Company C is a corporation governed by the CBCA and is a direct, wholly-owned subsidiary of Company B. Company C is a taxable Canadian corporation. Company C's Business Number is XXXXXXXXXX.
6. Company D is a corporation governed by the XXXXXXXXXX and is a direct, wholly-owned subsidiary of Company C. Company D is a taxable Canadian corporation. Company D's Business Number is XXXXXXXXXX.
7. The Corporation, Company A, Company B, Company C and Company D are serviced by the XXXXXXXXXX Tax Services Office and file their tax returns at the XXXXXXXXXX Taxation Centre. The current mailing address for these companies is:
XXXXXXXXXX.
8. Company E is a corporation governed by the XXXXXXXXXX . The shares of Company E are owned by XXXXXXXXXX. Company E is exempt from tax under paragraph 149(1)(d.5) of the Act and is subject to Part XI of the Act.
9. Company F is a corporation governed by the laws of XXXXXXXXXX, the shares of which are listed on the XXXXXXXXXX Stock Exchange. Company F is a resident of XXXXXXXXXX and is subject to income tax in XXXXXXXXXX.
10. Company G is a corporation governed by the XXXXXXXXXX of the shares of Company G are owned by XXXXXXXXXX and XXXXXXXXXX of the shares of Company G are owned by the Corporation.
11. XXXXXXXXXX.
12. Purchaser is a corporation governed by the XXXXXXXXXX. Purchaser is a taxable Canadian corporation. Company C and Company E each own XXXXXXXXXX of the shares of Purchaser.
13. Vendor and Purchaser have entered into an asset purchase agreement (the "Agreement") whereby Vendor has agreed to sell the Special Asset to Purchaser for cash consideration.
Proposed Transactions
14. The Corporation will establish an inter vivos commercial trust (the "Trust") pursuant to a declaration of trust. The Trust will be governed by Canadian law. Company D will be the trustee of the Trust. For convenience, the interests of the beneficiaries of the Trust will be described by reference to units. The Trust will not be a registered investment under the Act and units of the Trust will be foreign property for purposes of Part XI of the Act.
15. Company A will acquire XXXXXXXXXX of the units that will be issued by the Trust.
16. The Corporation will acquire the balance of the units of the Trust that are not acquired by Company A, as described in 15 above. The Corporation will also make an unsubordinated, unsecured interest-bearing loan to the Trust (the "Trust Debt"). The Corporation's only assets will be its units of the Trust, the Trust Debt and its shares of Company G. The cost amount to the Corporation of its investment in the units of the Trust will not at any time exceed XXXXXXXXXX percent of the total cost amount of all of its assets.
17. Two (2) new corporations will be incorporated under the laws of Canada or a province thereof ("Company H" and "Company I"). Company H and Company I will both be wholly-owned subsidiaries of Company F.
18. A new corporation ("Company J") will be incorporated under the CBCA. Company J will be a taxable Canadian corporation. Company C, Company E and Company H (or a related corporation) will each own 1/3 of the outstanding shares of Company J.
19. The Trust, Company E and Company H will establish a limited partnership (the "Partnership") under the laws of the Province of XXXXXXXXXX. The Trust, Company E and Company H will each make equal cash contributions to the Partnership for their 1/3 limited partnership interest. The general partner of the Partnership will be Company J.
20. The cash contribution to the Partnership by the Trust will be financed with the proceeds from the Trust Debt and the issuance of units of the Trust.
21. XXXXXXXXXX.
22. XXXXXXXXXX.
23. XXXXXXXXXX.
24. XXXXXXXXXX.
Purpose of Proposed Transactions
25. The purpose of the proposed transactions is to permit the Corporation to acquire an indirect interest in the Special Asset, and to finance that acquisition through an investment in the Trust where the portion of the Corporation's investment in the Trust represented by the Trust Debt will not be considered to be foreign property for purposes of Part XI of the Act.
26. To the best of your knowledge, and that of the taxpayer, none of the issues contained herein is:
(a) dealt with in an earlier return of the Corporation or a related person;
(b) being considered by a tax services office or taxation centre in connection with a previously filed tax return of the Corporation or a related person;
(c) under objection by the Corporation or a related person;
(d) subject to a ruling previously issued by the Income Tax Rulings Directorate to the Corporation or a related person; or
(e) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired.
Rulings
Provided that the preceding statements constitute a complete and accurate disclosure of all of the relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the proposed transactions are completed in the manner described above, our rulings are as follows:
A. The Trust Debt will not constitute foreign property for purposes of Part XI of the Act.
B. Subsection 245(2) will not be applied to the proposed transactions to redetermine the tax consequences thereof.
The above advance income tax rulings, which are based on the Act and Regulations in their present form and do not take into account any proposed amendments thereto, are given subject to the general limitations and qualifications set out in Information Circular 70-6R4 Advance Income Tax Rulings, dated January 29, 2001, and are binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
for Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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