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 the policy of paying dividends in the future establishes a minimum for the Class B shares that have a preference over the Class A shares such that the Class B shares are taxable preferred shares
Position:
No,
Reasons:
Dividend policy is not part of the terms of the share
XXXXXXXXXX 2003-003407
XXXXXXXXXX, 2003
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling
XXXXXXXXXX.
This is in reply to your letter of XXXXXXXXXX, wherein you request an advance income tax ruling on behalf of the above named corporation (the "Company").
We understand that, to the best of your knowledge and that of the taxpayer, none of the issues contained in the ruling requested herein is:
(a) dealt with in an earlier income tax return of the Company or a related person,
(b) being considered by a Tax Services Office or a Taxation Centre in connection with a tax return already filed by the Company or a related person,
(c) under objection by the Company or a related person,
(d) before the Courts, or if a judgement has been issued, the time limit for appeal to a higher Court has expired, or
(e) the subject of a previous ruling considered by the Rulings Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended to the date of this letter, (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 facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. The Company, through its various subsidiaries, provides XXXXXXXXXX.
2. The Company is a "taxable Canadian corporation" and a "public corporation" for the purposes of subsection 89(1) of the Act.
3. The Company's address is XXXXXXXXXX. The Company files its tax returns at the XXXXXXXXXX Taxation Centre and is serviced from the XXXXXXXXXX Tax Services Office. Its tax account number is XXXXXXXXXX.
4. XXXXXXXXXX.
5. The dividend entitlement and the liquidation entitlement of the Class A Shares and the Class B Shares can be summarized as follows:
(a) The holders of the Class B Shares are entitled to receive dividends from any funds of the Company at the time legally available for dividends, if, as and when declared by the board of directors at a rate of up to XXXXXXXXXX per share per annum;
(b) The holders of the Class A Shares are entitled to receive dividends from any funds of the Company at the time legally available for dividends if, as and when declared by the board at the rate of up to XXXXXXXXXX per share per annum, provided that no such dividend shall be paid in any year on the Class A Shares unless, and until there has been paid or set aside in such year a dividend at the rate of XXXXXXXXXX per share per annum on the Class B Shares;
(c) Subject to the foregoing, there are no limitations on payment of dividends and the Class A Shares and Class B Shares participate equally share for share as to dividends, which the directors may determine to declare and pay in any year without preference or distinction;
(d) In the event of liquidation, dissolution or winding up of the Company, the Class A Shares and the Class B Shares participate equally share for share in all property available for distribution without preference or distinction subject to the preference as to dividends stated in Article XXXXXXXXXX of the share provisions; and
(e) Article XXXXXXXXXX of the share provisions permits the declaration and payment of stock dividends in either Class A Shares or Class B Shares on both the Class A Shares and Class B Shares.
6. Each Class A Share is entitled to XXXXXXXXXX votes per share. The Class B Shares are entitled to receive notice of, and to attend but not to vote at any and all meetings of shareholders of the Company other than meetings of holders of a particular separate class of shares of which the Class B Shares do not form a part or where otherwise permitted by applicable law.
7. A holder of Class A Shares is entitled to have all or any of its Class A Shares converted into Class B Shares on the basis of one Class B Share for each Class A Share in respect of which the conversion right is exercised.
8. Except as noted above, each Class A Share and each Class B Share have the same rights and attributes.
9. In XXXXXXXXXX, the Company adopted a dividend policy with respect to the Class A Shares and the Class B Shares. Prior to that time, no dividends had been paid on such shares since XXXXXXXXXX except in the XXXXXXXXXX calendar year when a dividend of XXXXXXXXXX per share on both the Class A Shares and the Class B Shares was paid. Under the new policy, which can be changed at any time by the board, the Company proposes to pay dividends aggregating XXXXXXXXXX per share on each outstanding Class A Share and Class B Share per annum, payable XXXXXXXXXX yearly at the rate of XXXXXXXXXX per each such share. Each XXXXXXXXXX dividend is a separate dividend and will be declared as such by the board of directors if the board so determines.
10. A dividend of XXXXXXXXXX per share on each outstanding Class A Share and each outstanding Class B Share was paid on XXXXXXXXXX.
11. There is no agreement in respect of the Class B Shares or their issue to which the Company or a "specified person" in relation to the Company is a party nor is there any "guarantee agreement" within the meaning of paragraph (b)(iv) of the definition of taxable preferred share in subsection 248(1) of the Act. Furthermore, the dividends paid on the Class B Shares will not be derived primarily from the dividends received on taxable preferred shares of another corporation.
Proposed Transaction
12. The board of directors of the Company proposes to declare a dividend in the amount of XXXXXXXXXX on each Class A Share and each Class B Share payable on XXXXXXXXXX. It is expected that the board will declare such dividend in XXXXXXXXXX.
Purpose of the Transaction
The purpose of the transaction is to carry out the stated dividend policy of the Company.
Ruling Given
Provided that the preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions and purpose of the proposed transactions, and provided that the transactions are completed as proposed, we rule as follows:
The terms and conditions of the Class B Shares and the dividend policy of the Company as described in paragraph 9 above, will not in and by themselves result in those Class B shares issued after 8:00 pm EDST June 18, 1987 (that are not grandfathered shares) being considered to be taxable preferred shares at the time of the payment of the dividend on the Class B Shares to be declared as described in paragraph 12 above.
This ruling is subject to the general limitations and qualifications set forth in Information Circular 70-6R5 dated May 17, 2002, issued by the CCRA, and is binding provided the proposed transactions are completed by XXXXXXXXXX.
This ruling is based on the Act as it currently reads and does not take into account any future amendments to the Act, whether proposed or not.
Yours truly,
XXXXXXXXXX
For Director
Financial Industries Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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