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:
1. XXXXXXXXXX .
2. XXXXXXXXXX .
3. XXXXXXXXXX
Position:
1. XXXXXXXXXX
2. XXXXXXXXXX
3. XXXXXXXXXX
Reasons:
XXXXXXXXXX
XXXXXXXXXX 2002-014260
XXXXXXXXXX, 2002
Dear XXXXXXXXXX:
Re: Advance income tax ruling request, XXXXXXXXXX
XXXXXXXXXX ("E Co.") and XXXXXXXXXX ("D Co")
This is in reply to your letter of XXXXXXXXXX in which you request an advance tax ruling on behalf of the above named taxpayers. We also acknowledge the information provided in your subsequent correspondence and during our various telephone conversations in connection with your request (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the taxpayers involved, none of the issues involved in the ruling request
(i) is in an earlier return of the taxpayer or a related person,
(ii) is being considered by a tax services office or taxation center in connection with a previously filed tax return of the taxpayer or a related person,
(iii) is under objection by the taxpayer or a related person,
(iv) is before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has not expired, and
(v) is the subject of a ruling previously issued by the Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act R.S.C. 1985 (5th Supp.), c.1, as amended ("the Act") and all terms and conditions used herein that are defined in the Act have the meaning given in such definition unless otherwise indicated.
Our understanding of the relevant definitions, the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Definitions
"A Co" means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof;
"Act" means the Income Tax Act (Canada), and unless otherwise stated, every reference herein to a part, section, subsection, paragraph or subparagraph is a reference to the relevant provision of the Act;
"arm's length" has the meaning assigned by section 251;
"B Co Companies" means XXXXXXXXXX;
"C Co" means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof;
XXXXXXXXXX;
"capital property" has the meaning assigned by section 54;
"CCRA" means Canada Customs and Revenue Agency;
XXXXXXXXXX;
"D Co" means a trust established in XXXXXXXXXX pursuant to the laws of XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX;
"D Co XXXXXXXXXX" mean XXXXXXXXXX units of beneficial interest in the D Co, XXXXXXXXXX;
"D Co XXXXXXXXXX Ruling" means the advance income tax ruling XXXXXXXXXX issued by the CCRA on XXXXXXXXXX;
"D Co XXXXXXXXXX Securities" mean D Co XXXXXXXXXX Securities, XXXXXXXXXX, as described in paragraph XXXXXXXXXX hereof;
"D Co XXXXXXXXXX Securities" mean D Co XXXXXXXXXX Securities, XXXXXXXXXX, as described more fully in paragraphs XXXXXXXXXX and following hereof;
"D Co XXXXXXXXXX " means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof;
"Debenture Redemption Price" has the meaning set out in paragraph 39 hereof;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"E Co" means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof;
XXXXXXXXXX;
XXXXXXXXXX;
"E Co XXXXXXXXXX" has the meaning set out in paragraph XXXXXXXXXX hereof;
XXXXXXXXXX;
XXXXXXXXXX;
"F Co" means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof;
XXXXXXXXXX;
"G Co" means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof;
XXXXXXXXXX;
XXXXXXXXXX;
"H Co" means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof;
"I Co" means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"prescribed stock exchange in Canada" has the meaning assigned by section 3200 of the Regulations;
"principal amount" has the meaning assigned by subsection 248(1);
"Proposed Transactions" means the transactions described in paragraphs 26 to 56 hereof;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
XXXXXXXXXX;
"Regulations" means the Income Tax Regulations promulgated under the Act;
XXXXXXXXXX;
"subsidiary controlled corporation" has the meaning assigned by subsection 248(1);
"subsidiary wholly-owned corporation" has the meaning assigned by subsection 248(1);
XXXXXXXXXX;
XXXXXXXXXX;
"taxable Canadian corporation" has the meaning assigned by subsection 89(1);
"taxable dividend" has the meaning assigned by subsection 89(1);
XXXXXXXXXX;
XXXXXXXXXX;
Facts
1. E Co is a XXXXXXXXXX incorporated under the laws of Canada and is a taxable Canadian corporation XXXXXXXXXX.
2. The authorized capital of E Co includes common shares, and XXXXXXXXXX preferred shares XXXXXXXXXX. E Co is a subsidiary wholly-owned corporation of F Co. XXXXXXXXXX.
3. F Co was incorporated XXXXXXXXXX. F Co is a taxable Canadian corporation XXXXXXXXXX. The authorized capital of F Co includes common shares XXXXXXXXXX preferred shares, XXXXXXXXXX.
4. E Co carries on the business of XXXXXXXXXX.
5. XXXXXXXXXX.
6. XXXXXXXXXX , E Co is the parent holding company XXXXXXXXXX.
7. XXXXXXXXXX.
8. G Co is incorporated pursuant XXXXXXXXXX . It is a XXXXXXXXXX , a subsidiary wholly-owned corporation of E Co XXXXXXXXXX.
9. XXXXXXXXXX.
10. A Co is incorporated pursuant to the laws of XXXXXXXXXX. It is a subsidiary controlled corporation of I Co XXXXXXXXXX.
11. XXXXXXXXXX.
12. XXXXXXXXXX.
13. XXXXXXXXXX.
14. XXXXXXXXXX.
15. XXXXXXXXXX.
16. XXXXXXXXXX.
17. XXXXXXXXXX.
18. XXXXXXXXXX.
19. XXXXXXXXXX;
20. XXXXXXXXXX;
21. XXXXXXXXXX;
22. XXXXXXXXXX;
23. XXXXXXXXXX;
24. D Co was established in XXXXXXXXXX by way of declaration of trust under the laws of XXXXXXXXXX. The trustee of D Co is XXXXXXXXXX. The capital of D Co is represented by units of beneficial interest in D Co. D Co has issued XXXXXXXXXX classes of units: XXXXXXXXXX The D Co XXXXXXXXXX Securities were XXXXXXXXXX. The terms and conditions of the D Co XXXXXXXXXX Securities are set out in detail in the D Co XXXXXXXXXX Ruling.
25. XXXXXXXXXX.
Proposed Transactions
26. XXXXXXXXXX.
27. XXXXXXXXXX.
28. XXXXXXXXXX
29. D Co will cause all of its net income and net realized capital gains, if any, to be payable annually to the holders of D Co XXXXXXXXXX Securities XXXXXXXXXX.
30. The property of D Co from time to time will be limited to the XXXXXXXXXX.
31. XXXXXXXXXX.
32. XXXXXXXXXX.
33. XXXXXXXXXX.
34. XXXXXXXXXX. D Co will:
XXXXXXXXXX convert a corresponding principal amount of XXXXXXXXXX Debentures held by it XXXXXXXXXX, in accordance with the terms thereof XXXXXXXXXX for an equivalent amount of XXXXXXXXXX Shares XXXXXXXXXX
XXXXXXXXXX.
35. XXXXXXXXXX.
36. XXXXXXXXXX.
37. The permitted investments of D Co in which the D Co may reinvest the proceeds received by it upon the repayment of the XXXXXXXXXX Debentures on the maturity thereof will exclude debt obligations of XXXXXXXXXX or any person related to XXXXXXXXXX for purposes of the Act. However, if any D Co XXXXXXXXXX Securities remain outstanding on the maturity of the XXXXXXXXXX Debentures, D Co will use the cash proceeds received by it on repayment of the XXXXXXXXXX Debentures at that time to invest in property acquired from XXXXXXXXXX for a price equal to the fair market value thereof, XXXXXXXXXX.
38. XXXXXXXXXX proposes to issue to D Co the XXXXXXXXXX Debentures. The XXXXXXXXXX Debentures will XXXXXXXXXX have a principal amount of $XXXXXXXXXX (for a total principal amount of $XXXXXXXXXX) and will mature in XXXXXXXXXX XXXXXXXXXX . Interest on the XXXXXXXXXX Debentures will be payable XXXXXXXXXX in each year at a fixed market rate of XXXXXXXXXX.
39. The XXXXXXXXXX Debentures will not be redeemable by XXXXXXXXXX except upon XXXXXXXXXX. The XXXXXXXXXX Debentures may, however, be redeemed by XXXXXXXXXX after that time, XXXXXXXXXX for an amount equal to the principal amount thereof, together with any accrued and unpaid interest to the date fixed for redemption (the "Debenture Redemption Price"), XXXXXXXXXX.
40. The XXXXXXXXXX Debentures will be convertible at the option of the holder for an equivalent amount of XXXXXXXXXX Shares XXXXXXXXXX. For greater certainty, a holder of $1,000 principal amount of XXXXXXXXXX Debentures who exercises the optional conversion will receive 40 XXXXXXXXXX Shares having a liquidation entitlement equal to $25 each.
41. XXXXXXXXXX.
42. XXXXXXXXXX.
43. XXXXXXXXXX, upon XXXXXXXXXX Debentures will by their terms be XXXXXXXXXX converted into an equivalent amount of XXXXXXXXXX Shares XXXXXXXXXX.
44. XXXXXXXXXX.
45. The XXXXXXXXXX Debentures will be required to be repaid XXXXXXXXXX at the maturity thereof. XXXXXXXXXX.
46. XXXXXXXXXX.
47. XXXXXXXXXX.
48. XXXXXXXXXX.
49. XXXXXXXXXX.
50. XXXXXXXXXX.
51. XXXXXXXXXX.
52. XXXXXXXXXX.
53. XXXXXXXXXX.
54. XXXXXXXXXX proposes to use the borrowed monies represented by the XXXXXXXXXX Debentures in order to XXXXXXXXXX.
55. XXXXXXXXXX.
56. XXXXXXXXXX.
57. XXXXXXXXXX.
Purpose of Proposed Transactions
XXXXXXXXXX.
XXXXXXXXXX.
Rulings requested and given
Provided that the preceding statements constitute a complete and accurate disclosure of all the relevant facts, proposed transactions, and purpose of the proposed transactions, and provided further that the proposed transactions are carried out as described above, our Rulings are as follows:
We confirm that
A. XXXXXXXXXX;
B. Provided that the funds borrowed by XXXXXXXXXX under the XXXXXXXXXX Debentures as described in paragraph XXXXXXXXXX hereof are used by XXXXXXXXXX for the purpose of earning income from a business or property (other than to acquire property the income from which would be exempt or to acquire a life insurance policy) in the year, the amount payable in respect of the year as interest, to the extent that the amount payable is reasonable and is paid pursuant to a legal obligation to pay interest on the funds, will be deductible pursuant to paragraph 20(1)(c) of the Act by XXXXXXXXXX in computing its income for income tax purposes in respect of the year; and
C. XXXXXXXXXX.
The rulings are given subject to the limitations and qualifications set out in Information Circular XXXXXXXXXX and is binding on the Canada Customs and Revenue Agency provided that the proposed transactions are completed before XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
ENDNOTES
XXXXXXXXXX
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© Her Majesty the Queen in Right of Canada, 2002
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