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: Does a corporation's capital include its indebtedness for purposes of paragraph 149(1)(d.3) of the Act?
Position: Generally no, subject to terms and conditions of particular debt obligations.
Reasons: Consistent with scheme of provision.
XXXXXXXXXX 2002-016808
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re Advance Tax Ruling
XXXXXXXXXX ("X Co.") - XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, in which you request an advance tax ruling on behalf of the above named taxpayer. We also acknowledge the information provided in your subsequent correspondence and during our telephone conversations in connection with your request (XXXXXXXXXX).
We understand that, to the best of your knowledge and that of the taxpayer 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
"Canada" means Her Majesty in Right of Canada;
"City" means the City of XXXXXXXXXX;
"City Council" means the council of the City of XXXXXXXXXX;
XXXXXXXXXX
"Federal Government" means Her Majesty in right of Canada as represented by the member of the Queen's Privy Council for Canada designated by the Governor General in Council;
XXXXXXXXXX
XXXXXXXXXX
"Provincial Government" means Her Majesty in right of XXXXXXXXXX as represented by the Minister of Finance or such other member of the Executive Council as may be designated under the XXXXXXXXXX to administer the Y Co. Legislation;
"X Co." means the XXXXXXXXXX the sole shareholder of which is XXXXXXXXXX and further described in paragraph 1 herein;
"Y Co." means X Co., continued as a corporation without share capital pursuant to the Y Co. Legislation and further described in paragraph 5 herein;
"Y Co. Legislation" means XXXXXXXXXX, and further described in paragraph 4 herein;
"Three Contributors" means collectively the City, XXXXXXXXXX and Canada; and
"Three Governments" means collectively the City Council, the Provincial Government and the Federal Government.
Facts
1. X Co. was incorporated under the XXXXXXXXXX in connection with an initiative by the Three Contributors related to the City's XXXXXXXXXX. X Co. was incorporated with common share capital and the sole shareholder is XXXXXXXXXX No person other than XXXXXXXXXX has, or ever had a right or option to acquire shares or capital of X Co..
2. X Co.'s purpose is to advance work on XXXXXXXXXX City XXXXXXXXXX projects that were announced as part of a $XXXXXXXXXX funding commitment on the part of the Three Contributors to revitalize the City's XXXXXXXXXX ("the XXXXXXXXXX Initiative"). As set out in the XXXXXXXXXX, this initiative encompasses XXXXXXXXXX. Under the XXXXXXXXXX, the Three Contributors agreed to provide X Co. with up to $XXXXXXXXXX of initial funding to carry out its mandate. The funding provided and to be provided to X Co. by the Three Contributors will be credited against the commitment made by the Three Contributors to each contribute $XXXXXXXXXX in funding for the XXXXXXXXXX Initiative.
3. Under existing provincial legislation the City is not legally permitted to participate in a permanent corporation, the nature of which is contemplated by the Three Contributors. X Co.'s purpose is to advance the XXXXXXXXXX Initiative until such time as such a permanent corporation is established by provincial legislation.
4. The Y Co. Legislation was proposed for the purpose of establishing Y Co., and providing for the terms of its governance as the permanent corporation referred to in paragraph 3 herein. This legislation received Royal Assent on XXXXXXXXXX, but has not yet been proclaimed in force.
Proposed Transactions
5. As set out in sections XXXXXXXXXX of the Y Co. Legislation, X Co. will be continued as a corporation without share capital, (i.e., as Y Co.). Once the Y Co. Legislation comes into force the outstanding shares of X Co. will be cancelled and no amount will be payable to any person in respect of the cancelled shares.
6. Section XXXXXXXXXX of the Y Co. Legislation states that Y Co. shall be deemed not to be a Crown agency within the meaning of the Crown Agency Act (XXXXXXXXXX).
7. The objects of Y Co. are stated in sections XXXXXXXXXX of the Y Co. Legislation as follows:
XXXXXXXXXX.
8. The objectives of Y Co. as stated in paragraph 7 above have been initiated by X Co. pursuing the following mandated activities as set out under the XXXXXXXXXX:
XXXXXXXXXX.
9. The objectives of Y Co. will be funded in part by the initial investment by the Three Contributors pursuant to the XXXXXXXXXX, which defines the costs to be shared by the Three Contributors under the XXXXXXXXXX Initiative.
10. The XXXXXXXXXX further provided for the establishment of an XXXXXXXXXX ("the Committee") having the following responsibilities:
XXXXXXXXXX.
11. In addition to the funding referred to in paragraph 9 herein, Y Co. may undertake various revenue-generating projects and may also borrow significant amounts of money from the private sector. To ensure Y Co.'s accountability to the Three Contributors, sections XXXXXXXXXX limit the rights, powers and privileges of Y Co. as follows:
XXXXXXXXXX.
12. Y Co. may only borrow money when it has the consent of the Three Governments or is authorized by regulation and the borrowing is approved by a vote of the majority of the board of directors, all members of which are appointed as described in paragraph 14 herein. Only the board of directors as appointed by the Federal Government, the Lieutenant Governor in Council (XXXXXXXXXX) and the City Council may, at any time bind Y Co. in the borrowing of money and only directors may vote at a meeting of the board of directors. No lender will participate in the governance of Y Co. at any time.
13. Section XXXXXXXXXX of the Y Co. Legislation provides that Y Co. will be composed of the members of its board of directors.
14. Section XXXXXXXXXX of the Y Co. Legislation provides that the board of directors of Y Co. will be composed of the following members:
XXXXXXXXXX.
15. Section XXXXXXXXXX of the Y Co. Legislation provides that the board member appointed jointly by the Federal Government, the Lieutenant Governor in Council (XXXXXXXXXX) and the City Council is the chair of the board.
16. Section XXXXXXXXXX of the Y Co. Legislation provides that the board of directors shall follow such directions concerning the management and supervision of the affairs of Y Co. as may be set out in a written agreement of the Three Contributors.
17. Section XXXXXXXXXX of the Y Co. Legislation requires the board of directors to adopt a business plan for Y Co. for each fiscal year and provide a copy of the business plan to members of each of the Federal Government, the Provincial Government and the Clerk of the City on behalf of the Mayor and members of the City Council.
18. Section XXXXXXXXXX of the Y Co. Legislation sets out provisions governing the wind-up of Y Co.. Section XXXXXXXXXX provides that the plan for governing the winding up of Y Co. will require that the assets and liabilities of Y Co. be transferred to Canada, XXXXXXXXXX, the City, or to any combination thereof, but to no other person.
Purposes of the Proposed Transactions
The purposes of the proposed transactions include:
? fulfilling XXXXXXXXXX commitment to establish a permanent corporation to take the lead on the XXXXXXXXXX Initiative (as more fully described in paragraphs 7 and 8 herein);
? permitting the City to participate in Y Co. and any subsidiary corporation that may be established;
? providing a broad outline of Y Co.'s purpose, powers and mandate;
? providing a framework for future decisions regarding Y Co. in such key areas as business planning, financial accountability and annual reporting requirements; and
? providing for a board of directors appointed by the Three Governments (as more fully described in paragraphs 13 and 14 herein).
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 ruling is as follows:
Based on the information in paragraphs 2 through 18 above, we confirm that Y Co. will be exempt from income tax on its taxable income under Part I of the Act by virtue of paragraph 149(1)(d.3).
The ruling is given subject to the limitations and qualifications set out in Information Circular 70-6R5 and are binding on the Canada Customs and Revenue Agency provided that the Y Co. Legislation is proclaimed in force by XXXXXXXXXX.
Yours truly,
XXXXXXXXXX
Manager
Financial Institutions
Financial Industries Division
Income Tax Rulings Directorate
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