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
Position:
1. XXXXXXXXXX .
2. XXXXXXXXXX .
Reasons:
XXXXXXXXXX .
XXXXXXXXXX 2003-002242
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX ("X Co.")
A trust to be established ("Y Co.")
This is in reply to your letter of XXXXXXXXXX in which you request an Advance Income Tax Ruling on behalf of the above named taxpayers. We also acknowledge the information provided in 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; or
(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
"Automatic Exchange" has the meaning set out in paragraph XXXXXXXXXX hereof.
XXXXXXXXXX
"Debenture Redemption Price" has the meaning set out in paragraph XXXXXXXXXX hereof.
XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
"Holder Exchange Right" has the meaning set out in paragraph XXXXXXXXXX hereof.
XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
"principal amount" has the meaning assigned by subsection 248(1).
XXXXXXXXXX.
XXXXXXXXXX
"Redemption Price" has the meaning set out in paragraph XXXXXXXXXX hereof.
XXXXXXXXXX
XXXXXXXXXX.
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
"X Co." means XXXXXXXXXX as described more fully in paragraph XXXXXXXXXX hereof.
"Y Co." means XXXXXXXXXX as described more fully in paragraphs XXXXXXXXXX and following hereof.
XXXXXXXXXX
XXXXXXXXXX
XXXXXXXXXX
Facts
1. X Co. is a XXXXXXXXXX incorporated under the laws of XXXXXXXXXX and is a taxable Canadian corporation, XXXXXXXXXX.
2. XXXXXXXXXX.
3. XXXXXXXXXX.
4. XXXXXXXXXX.
Proposed Transactions
5. It is proposed that Y Co. be established under the laws of XXXXXXXXXX by way of a declaration of trust dated XXXXXXXXXX. The trustee of Y Co. will be XXXXXXXXXX, a taxable Canadian corporation XXXXXXXXXX.
6. XXXXXXXXXX.
7. XXXXXXXXXX.
8. XXXXXXXXXX.
9. XXXXXXXXXX.
10. XXXXXXXXXX.
11. The property of Y Co. from time to time will be limited to XXXXXXXXXX.
12. XXXXXXXXXX.
13. XXXXXXXXXX.
14. XXXXXXXXXX.
15. XXXXXXXXXX. Y Co. will:
(a) convert a corresponding principal amount of Debentures held by it XXXXXXXXXX in accordance with the terms thereof as set out below; and
(b) XXXXXXXXXX.
16. XXXXXXXXXX.
17. XXXXXXXXXX.
18. XXXXXXXXXX.
19. Eligible Investments of Y Co. in which Y Co. may reinvest the proceeds received by it upon the repayment of the Debentures on the maturity thereof will exclude debt obligations of XXXXXXXXXX or any person related to XXXXXXXXXX for purposes of the Act. If any Y Co. XXXXXXXXXX Securities remain outstanding on the maturity of the Debentures, Y Co. will use the cash proceeds received by it on repayment of the Debentures at that time to invest in Eligible Investments acquired from X Co. for a price equal to the fair market value thereof.
20. XXXXXXXXXX.
21. XXXXXXXXXX.
22. XXXXXXXXXX proposes to issue to Y Co. the Debentures. The Debentures will XXXXXXXXXX have a principal amount of $XXXXXXXXXX each and will mature on XXXXXXXXXX. Interest on the Debentures will be payable XXXXXXXXXX in each year at a fixed market rate of approximately XXXXXXXXXX. Y Co. will subscribe for the Debentures using the proceeds from the issue of the Y Co. XXXXXXXXXX Securities. XXXXXXXXXX.
23. The Debentures will not be redeemable by XXXXXXXXXX except upon XXXXXXXXXX. The Debentures may, however, be redeemed by XXXXXXXXXX on or 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.
24. The Debentures will be convertible at the option of the holder for an equivalent amount of XXXXXXXXXX Shares XXXXXXXXXX. For greater certainty, a holder of $XXXXXXXXXX principal amount of Debentures who exercises the conversion right will receive XXXXXXXXXX Shares having a liquidation entitlement equal to $XXXXXXXXXX each.
25. XXXXXXXXXX.
26. XXXXXXXXXX.
27. XXXXXXXXXX. The Debentures will be required to be repaid XXXXXXXXXX at the maturity thereof, XXXXXXXXXX.
28. XXXXXXXXXX.
29. XXXXXXXXXX.
30. XXXXXXXXXX.
31. XXXXXXXXXX.
32. XXXXXXXXXX.
33. XXXXXXXXXX.
34. XXXXXXXXXX.
35. XXXXXXXXXX.
36. XXXXXXXXXX.
37. XXXXXXXXXX.
38. XXXXXXXXXX.
39. XXXXXXXXXX.
Purpose of Proposed Transactions
XXXXXXXXXX.
Rulings
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. Provided that the proceeds from the issue of the Debentures, as described in paragraph 22 above, are used and continue to be used for the purpose of earning income from a business or property XXXXXXXXXX will be entitled, pursuant to paragraph 20(1)(c), to deduct in computing its income for a taxation year from a business or property the amount paid in the year or payable in respect of the year (depending on the method regularly followed by XXXXXXXXXX in computing its income) as interest on the Debentures to the extent that the amount paid or payable is reasonable and is paid pursuant to a legal obligation to pay interest; and
B. XXXXXXXXXX.
The Rulings are 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 proposed transactions are completed before XXXXXXXXXX.
These rulings are based on the Act as it currently reads and do not take into account any future amendments, whether currently proposed or not to the Act.
Yours truly,
XXXXXXXXXX
Manager
Financial Institutions Section
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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© Her Majesty the Queen in Right of Canada, 2003
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